February 14, 2013—Amazon and the state of Georgia are battling it out on whether or not to start charging sales tax to Georgia shoppers. Since January 1st, the online marketplace has not collected sales tax, despite a new state law requiring online retailers to charge it at the beginning of the year. These inactions could throw the state of Georgia and Amazon into a potentially costly battle for both sides.
The new law expands the definition of physical presence, something Amazon has been fighting other states in court about. The new law would force Amazon to charge sales tax to affiliates with a physical operation in Georgia because it receives some customer traffic from these sites and affiliates earn a commission each time a shopper buys from an Amazon link on their site. When the law was put in to place, it was expected that Amazon would end relationships with these affiliates but that hasn’t been the case. Other businesses like Overstock.com and Vitacost.com have ended their relationships with Georgia websites in order to avoid collecting this tax.
Amazon is no stranger to legal battles. For years, Amazon has fought against charging its customers sales tax, leading to many legal battles in some states and negotiations to delay the taxes in others. Negotiations include delaying the collection of sales tax in exchange for creating jobs in the state. Earlier this month, Amazon agreed to start collecting sales tax in Connecticut Nov. 1 – and to invest $50 million to building a future facility in the state.
By negotiating deals with states to collect taxes at a later date, Amazon is avoiding costly litigation and buying itself more time as a tax-free site, which brick-and-mortar businesses claims gives it a competitive edge. If Georgia’s new law actually collected taxes for online retailers, the state believes it would add an estimated $16 million annually to Georgia’s dwindling funds. The added tax would also appease owners of local stores who say collecting sales tax puts them at an unfair disadvantage.
Many speculate Amazon is simply buying time.
“There’s recognition on Amazon’s part that the tide will eventually turn against them legally,” David Brunori, a professor of public policy at George Washington University said. “They want to buy time before that happens.”
Richard Pomp, a professor at the University of Connecticut School of Law, said Amazon is likely not collecting taxes in Georgia because it thinks it has room to challenge the law, which he said was poorly drafted because it does not require the activities that would require tax collection take place in Georgia.
In the case of Amazon and the state of Georgia, it may be days, weeks or even years before a deal is made according to three people aware of the conversations. However, President and CEO of the Georgia Retail Association, Rick McAllister feels otherwise.
“I’m very comfortable saying Amazon will build a distribution center in Georgia,” McAllister said.