Amazon boxes
Amazon is one of the nation's largest retailers, but the sales tax implications of its billions in sales are causing states headaches. Image: Flickr / akiraohgaki / CC-BY-SA

Amazon Inc is one of the biggest retailers in the United States, and certain sales tax provisions have helped it grow. The sales tax Amazon does or does not pay on purchases has become a sticking point for many states that are losing out on millions in tax revenue. Now, California lawmakers are weighing an offer by Amazon to hire thousands of new California employees in exchange for concessions on sales tax code.

Tackling the sales tax problem

Several states have been trying different ways to pin down the problem of sales taxes from online retailers. Retailers that do not have a “nexus” in a certain state are not necessarily responsible for paying sales taxes on products purchased by residents of other states. This sales tax difference is enough that some states have tried defining “nexus” as any business presence, which Amazon has responded to by shutting down anything except direct sales to those states.

California’s sales tax problem

Some estimates say California is losing out on $300 million or more per year in unpaid sales taxes. In order to address this loss of money, California has passed a referendum that would require all out-of-state retailers to collect sales tax on any sales shipped out to California. This new law is intended to do two things – reduce the so-called unfair competition from retailers that are not required to pay sales tax and increase revenues to state and local governments.

Amazon offers jobs for taxes

Amazon has, thus far, dumped more than $5 million into the campaign intended to repeal the California sales tax law. In a meeting with state leaders, Amazon offered to build new distribution centers in California and hire 7,000 new employees. These new employees would reduce the California unemployment rate by about 0.1 percent. California lawmakers have not said for certain whether the proposal will be accepted, but general sentiment seems to be going against the proposal, as California is in desperate need of revenue.

E-fairness legislation in Congress

California is not the only state that has been facing troubles with sales taxes. The Digital Goods and Services Tax Fairness Act of 2011, which has gone in to committee and will likely not come, would attempt to create a “clear national rule” on the taxation of digital goods. There have been calls for a single national sales tax for years, but the continued problems with major online retailers and state sales tax collections will likely bring the issue to a head within the next few years.


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