Taxbreaks.com: States get tough on costly loopholes for online retailers
But with states facing record budget shortfalls, the "Amazon loophole" -- which by one estimate costs states more than $10 billion a year -- came under increasing attack in state legislatures across the South and country.
Most remarkably, the battle over taxing online sales has united people across party and creed, a sign that even in today's Tea Party era -- and even in the South, viewed as a bastion of the anti-tax cause -- the idea of big corporations paying their fair share still enjoys widespread support.
Some dispatches from across the South:
* In Texas -- which cut $24 billion in services to address its revenue shortfall -- the Republican-dominated House voted 122-23 this spring to start requiring online retailers to collect sales taxes in the state. Gov. Rick Perry (R) vetoed the bill in May, but a new budget bill including the same measure passed the legislature last week and awaits the governor's decision. In February, the state comptroller sent Amazon a bill for $269 million in back taxes officials estimated they owed the state.
* In Arkansas, lawmakers passed a bill earlier this year to require
out-of-state online retailers to collect sales tax if their annual sales in the state exceed $10,000. Amazon quickly retaliated, closing down its affiliate program in the state, as it had done in North Carolina when it began requesting tax payers to report online purchases.
* In Louisiana, the House voted 78-14 to force online retailers to collect sales tax. It now moves on to the Senate.
But if the actions of these and other states show a push for updating the tax code to reflect 21st century retail realities, other states are finding it harder to challenge big online retailers.
Consider South Carolina. Earlier this spring, the S.C. House voted 71 to 47 to reject a sales tax exemption for a partially-built Amazon warehouse engineered by former Gov. Mark Sanford. The State newspaper chalked up the defeat due to "pressure from small merchants, other national retailers and Tea Party activists" upset at Amazon getting special treatment. Indeed, as Tea Party favorite Gov. Nikki Haley (R) said:
"They got free property, they got tax incentives, they got plenty of
things. Don't ask us to give you sales tax relief when we're not giving
it to the book store down the street...It's just not a level playing
But South Carolina lawmakers finally relented: The Senate passed -- and Gov. Haley allowed -- a bill granting Amazon a four-and-a-half year tax exemption on the $125 million distribution facility. When the bill was being debated, Amazon cancelled more than $52 million in work contracts to show it meant business.
In Florida, which relies on sales taxes for 70% of the state budget, a well-funded "Stand With Main Street" campaign uniting small business with big brick-and-mortar companies has stepped up a push for legislation. But the bill died in the budget debate in May.
Amazon is building two distribution centers in Tennessee, giving the company a "physical presence" that would make imposing a sales tax easier than in other states. But Gov. Bill Haslam (R) has argued he would fight such a measure because it might drive Amazon to start building in states without such laws.
The fragmented state-by-state approach is leading reform proponents to get behind national legislation like the Main Street Fairness Act sponsored by Rep. William Delahunt (D-MA). The bill would require states to adopt the already-existing Streamlined Sales and Use Tax Agreement, which standardizes and simplifies sales tax collection for companies.
24 states have adopted the streamlined sales tax, while 1,500 companies
have voluntarily collected $700 million in sales tax revenue since 2005
using the system. Big companies like Overstock.com say they'd support it.
Now, say advocates, the task is to get more states -- and Congress -- on board.