Idaho Gov. Butch Otter has long been in favor of taxing online businesses that lack a physical presence in Idaho but sell and deliver into the state. Last week, the governor’s office praised Amazon’s announcement and said the additional tax revenue will, “help pay for the essential operations of state government.” Even more important, the statement continued, Amazon’s decision to collect “will help Idaho taxpayers complying with state law while creating a more level playing field for Idaho’s brick-and-mortar retailers.”
Use tax owed on untaxed sales
Idaho consumers are supposed to voluntarily remit use tax to the state if sales tax wasn’t collected at checkout and the purchased goods are consumed, stored, or used in the state. Yet despite the Idaho State Tax Commission’s efforts to remind taxpayers of their use tax obligation, few taxpayers comply. Amazon’s decision to collect in Idaho will help remedy this, at least with respect to Amazon transactions.
Amazon does not collect tax in two states
As of this writing, there are only two states with a general sales tax where Amazon does not now or will not soon collect and remit tax: Hawaii and Maine. Five states do not levy a general sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.
Many lawmakers in Hawaii want to tax sales by out-of-state vendors. However, prior attempts to enact remote sales tax legislation have been thwarted by lawmakers who favor waiting for a federal solution (i.e., Congress granting states the authority to tax remote sales). State internet tax laws are difficult to enforce and are often challenged by out-of-state vendors, leading to costly legal battles.
Nonetheless, the state is still looking to increase its remote tax revenue. Four bills that would boost remote collections in Hawaii are currently under consideration, and Rep. Isaac Choy believes there’s a good reason to enact one — even if it is later disputed. He says Hawaii will have a better chance at catching Amazon’s eye (and triggering voluntary tax collection) if the state can get a remote tax law on the books.
However, enacting remote sales tax legislation doesn’t always lead to more remote tax revenue. In fact, it has backfired for some states in the past. When Maine enacted affiliate nexus legislation requiring certain out-of-state sellers with affiliates in Maine to collect and remit sales tax, Amazon terminated its relationship with Maine affiliates. At the start of 2015, residents of six states were banned from participating in Amazon’s Associates Program. Today, only Maine residents remain on the blacklist.
Although Amazon hasn’t revealed why it is has decided to voluntarily collect and remit sales and use tax in so many new states, its actions reveal a decided trend. Since Jan. 1, 2017, the Seattle-based company has started collecting tax (or announced its intention to collect) in 14 states:
- Arkansas (March)
- Idaho (April)
- Iowa (Jan.)
- Louisiana (Jan.)
- Mississippi (Feb.)
- Missouri (Feb.)
- Nebraska (Jan.)
- New Mexico (April)
- Oklahoma (March)
- Rhode Island (Feb.)
- South Dakota (Feb.)
- Utah (Jan.)
- Vermont (Feb.)
- Wyoming (March)
Snapshot: for and against remote sales tax
Proponents of online sales tax argue that untaxed remote sellers have a competitive edge over local businesses that are required to charge tax. Opponents of remote sales tax argue that requiring businesses to collect and remit tax in states where they lack a substantial physical presence is burdensome and a violation of the Commerce Clause of the United States Constitution.
The Supreme Court of the United States maintained in Quill Corp. v. North Dakota, 504 U.S. 298 (1992) that states cannot impose a tax collection burden on businesses lacking a substantial physical presence in the state. Several states are now working to challenge Quill in the hope that the court will overturn its earlier decision. Learn more about state efforts to overturn Quill: South Dakota happy its law is unconstitutional, and Colorado use tax notification starts July 2017.
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