March 6, 2010

Trying to Comprehend the Amazon Tax

Justin Katz

Being as circumspect as I'm able, I can't see the Amazon tax as anything other than myopic protectionism on the part of RI policy makers. Basically, the law states that a company has "a physical presence" in the state if it has affiliate agreements with local businesses, requiring them to collect Rhode Island sales taxes:

[RI House Finance Committee Chairman and General Treasurer Candidate Steven] Costantino said he wants to keep the law in place as a matter of equity. "Rhode Island businesses who are on Main Street need a fair playing field," he said.

Gary S. Sasse, director of the state Department of Revenue, put it this way: When buying a camera from a store in Rhode Island, a consumer must pay a sales tax. When buying online, a consumer may or may not pay sales tax.

"It's a violation of the basic concept of fairness in tax policy, to tax one seller and not the other," Sasse said. Repealing the Amazon law would be a mistake, he said.

The vision evident in that view is as narrow as a snake's scale. First of all, local businesses can compete on the lack of shipping costs and immediate gratification. Second of all, the Internet enables local businesses to create online stores and pursue customers worldwide. Large, national companies will have a huge advantage over small, Rhode Island companies once all states follow Rhode Island's lead.

The most mind-boggling thing is that consumers can still get the products without taxation, provided absolutely nobody locally benefits from the purchase. At the very least, one can say that Rhode Island is in no position, economically, to be in the vanguard of this government backlash against Internet retailers.

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In RI the way the law is written, the requirement to pay sales tax as excise tax on purchases in state and out of state is squarely placed on the purchaser or customer not the store or vendor and it is up to the purchaser or customer when completing their State of RI state income tax forms to pay sales or excise tax not collected at time of purchase.

In Hawaii they took a different track that provides a more stable tax income to the state and simplest to operate. Everything (all transfers of goods and services for profit and non-profit) is taxed via an excise tax. Only prescription drugs are not taxed. This allowed the state to lower the tax rate to 4%. 1/2% surcharge was added 2 years ago to pay for high speed light rail in the City and County of Honolulu.

All businesses for profit and nonprofit are taxed on gross sales and services rendered. It is up to the businesses to collect the excise tax from the customer to offset payments to the State of HI. If the business does not collect the excise tax than the business is responsible for paying the tax to the state.

This applies to all businesses doing business in the State of HI. Most all business out of state and on the Internet collect HI state excise tax. There is a HI supplemental excise tax form for use to pay excise tax for out of state and Internet purchases that were not taxed at time of sale.

Some people will argue that in HI we are paying more taxes but when you examine the different rates and time, cost and paperwork plus added people to administer a 7% sales tax with a lot of exemptions a lower tax with no exemptions is a cheaper alternative. Also making the business responsible for the tax verses the consumer guarantees the state will receive the tax income.

The Tax Foundation indicates HI has one of the lowest excise tax (sales tax) but collects a higher proportion of tax per population bases. What the Tax Foundation does not factor in is the more than 100,000 daily tourists that visit the Hawaiian islands.

Posted by: Ken at March 6, 2010 5:18 PM

[RI House Finance Committee Chairman and General Treasurer Candidate Steven] Costantino said he wants to keep the law in place as a matter of equity. "Rhode Island businesses who are on Main Street need a fair playing field," he said.

Right! Yes, why don't we drop the tax at Nain Street stores?

Posted by: Warrington Faust at March 6, 2010 6:49 PM


What you said is true as far as the normal sales tax goes, but the Amazon tax is different. Right now most (all?) states require businesses to collect & remit sales tax on purchases if they have a physical location in the state. That's why you have to pay sales tax at Barnes & Noble's website, but not at Amazon. The Amazon tax was an attempt to get around that -- to classify the company's "affiliate program" (where normal people, like me for instance, could sell items like used books through Amazon's website) as a de facto in-state location, so that Amazon would have to collect sales tax for all sales to Rhode Island. Amazon responded by simply dropping the Rhode Island users of its affiliate program, since was was far easier to do that than to comply with the new law. In the end, the state actually lost money in the fiasco; Amazon collected no taxes, which is exactly what they said they would do, and their affiliates lost an income source (meaning lower income tax collections for the state).

I believe that New York and California passed similar laws, but they were successful as their respective sizes made the loss of those affiliates less acceptable to the company. RI doesn't have that luxury. Other states, like Maryland, also tried to pass this type of law, but dropped it once they found out that Amazon wasn't willing to play ball.

Ironically, I actually live on "Main Street," but somehow I don't warrant Costantino's concern.

Posted by: Mario at March 6, 2010 6:51 PM


That was also the case here in Hawaii with the "affiliate program". If Amazon does not collect the HI excise tax on a sale there are alternate ways and forms for residents to pay the HI 4% excise tax. Don't forget most everything gets shipped into HI and must be inspected before it's allowed into the state.

However what I was trying to point out, RI put the tax liability on the consumer whereas HI put the tax liability on the business which is easier to collect from.

RI in its attempt to make up lost sales tax revenue is trying to shift the tax liability from the consumer to Amazon while still trying to keep existing laws in place. Dumb move!

There are books stores galore that sell new titles at or below Amazon's price located in MA! A quick 1/2 drive and 3 hrs in the book store with maybe lunch and I was home with as many titles as I wanted to purchase all without paying RI sales tax and no waiting for 2-3 day delivery! One of the largest bookstores in New England is about 1/2 hr from MA/RI boarder!

Posted by: Ken at March 6, 2010 7:31 PM



Shipping cost can or cannot play into your scenario because if you are a smart business person then you recognize what the US Postal Service has done for all people and business. The Priority Flat Rate Mail envelopes to large shipping boxes are good for up to 70 pounds with 2-3 day delivery. $4.95 to $13.95 depending on size of envelope to large box are free at the post office!

You try shipping 70 pounds with Mr. Brown UPS or FEDX for $13.95 with grantee delivery 2-3 days! I can tell you it will cost over $100!

I send a lot of stuff from HI to RI and I love my Priority Flat Rate Mail! I ran into a small company that uses it exclusively for mailings to the mainland!

I've never shopped Amazon on-line because there is no way you can protect your private information or credit card information on the Internet. There is no real security. I will not even do my income tax on the internet or transmit it to the IRS or especially the State of RI because there is no security. I do not shop on the Internet because there is no security.

Posted by: Ken at March 6, 2010 10:56 PM

"I've never shopped Amazon on-line because there is no way you can protect your private information or credit card information on the Internet."

I believe "PayPal" has devised a method to do precisely that.

Posted by: Warrington Faust at March 7, 2010 1:34 PM

"The Priority Flat Rate Mail envelopes to large shipping boxes are good for up to 70 pounds with 2-3 day delivery. $4.95 to $13.95 depending on size of envelope to large box are free at the post office!"

I too make use of that service. Still the comparisons given in the prior post make it obviously a subsidy. The question then is both moral and practical. Should we accept the subsidy and how long can it last.

At the same time, the PO has cancelled "surface" overseas mail. Now, all mail to overseas destinations must go "air mail". This makews UPS very competitive to, let's say, Mexico City or Vancouver.

Posted by: Warrington Faust at March 7, 2010 1:39 PM

Of course, there are those among us who try to do our "Main Street" shopping in MA -- goods, gas and booze -- both to take advantage of the lower taxes there AND to do our part to make RI a better place by doing what we can to deprive the crooks in the General Assembly of as much revenue as possible.

Posted by: Ragin' Rhode Islander at March 7, 2010 4:57 PM

Ragin, I purchase goods from NH, MA, RI in that order, in inverse proportion to the corruption, taxes, and government waste in each. "Starve the beast."

Posted by: Dan at March 7, 2010 6:15 PM

Warrington Faust,

As a former Federal Information Systems Security Manager in order to sufficiently protect the sensitive information all operating systems, computer systems and auxiliary devices, routers, switches, connecting cable or fiber and type 2 encryption methodology would need to be tested and certified compliant to National Institute of Standards and Technology's (NIST) computer information security protection directives and guides.

Pay Pal might claim to have a system but it's not certifiable secure.

The MS Windows Operating system and MS Explorer Browser has not been certified and listed as a secure product by NIST.

All products used in the travel of information from point A to point B must be certified to security and the encryption methodology must be certified.

1 bad apple and the whole system is no good and unverifiable to security so if you are starting out with MS Windows operating system and MS Explorer you are already behind the eight ball!

Any time you send information over the public Internet a copy is made for recovery purposes.

Posted by: Ken at March 7, 2010 7:06 PM

Ken, are you a cash-only guy for everything and have nothing on any kind of credit?

Posted by: Patrick at March 7, 2010 9:40 PM


Pretty much so!

I have 2 different credit cards which I use only at point of sales or over the telephone minimally when I am forced to and the balance is cleared within 30 days. I keep a minimal card limit so as not to entice myself into spending. If I can't pay for it in cash or write a check then I don't need it. This is why I have no debt.

I know what you're going to say, my numbers and sensitive information are in the clearing houses and they are already subject to cyber attacks on the backside but I try to limit exposure.

I do no business over the Internet with my credit cards.

Posted by: Ken at March 8, 2010 3:16 PM
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