How Amazon.com undersells Best Buy, the Apple store, and almost everybody else.

Commentary about business and finance.
Nov. 19 2010 4:56 PM

Every Day's a Tax Holiday

How Amazon.com undersells Best Buy, the Apple store, and almost everybody else.

(Continued from Page 1)

While Amazon is still fighting the New York tax law, the company has been collecting taxes in the state as per the legislation. But Amazon has pushed back against collecting taxes in three other states that passed similar laws—it told its marketing affiliates in Colorado, North Carolina, and Rhode Island to take a hike, allowing the company to skirt tax collection there. And it has threatened to do the same in other states—including California—where legislators have proposed affiliate-related taxes.

So, is Amazon's tax-free status unfair? Of course it is. As Mazerov points out, Amazon has physical operations in 17 states in which the company and its employees enjoy the fruits of local taxes—police and fire protection, roads, hospitals, and other infrastructure that make its operations possible. Yet Amazon skirts tax collection in most of these places through clever legal tricks. For instance, it has incorporated its warehouses and Web site as separate legal entities in order to argue that it doesn't really have a presence in Nevada, Texas, and other states. The Kindle offers another example of that strategy—the e-book reader was developed at Lab126, an Amazon office based in Cupertino, Calif. But that office is actually a legal subsidiary, freeing Amazon of collecting any taxes in California.

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One note of warning for online shoppers: Even if Amazon doesn't collect taxes from you at the point of purchase, you're still likely responsible for paying taxes on your items. That's because most states impose a "use tax" on goods purchased from out-of-state retailers. Technically, then, if I buy a $1,000 laptop from Amazon, I'm supposed to pay a $90 use tax when I file my taxes to my home state of California at the end of the year. I've never done this, and I bet you haven't either—almost nobody does, because states have no good way to enforce use tax collection.

Given the obvious unfairness of Amazon's tax status—and given the clear loss in revenue for cities, counties, and states—you might wonder whether it is in some sense unethical to shop at Amazon. Is it your civic duty to buy from stores that collect sales taxes even if you'll get a better deal from Amazon?

No way! Sure, Amazon's tax status is unfair, but that's the law. As long as you're doing nothing illegal—remember to report your purchases at the end of the year … wink, wink—you've got every right to seek out the best deal you can get. That, after all, is the American way.

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