E-fairness has been in the news recently, and there are a lot of takes, a lot of numbers, and a lot of opposing arguments. As an independent business, Bookworks supports this sales tax legislation, and since it's a topic not everyone's well-versed on (and I've had practice explaining it in detail to Congressman Heinrich and a staffer of Senator Udall's), here's as brief a primer as I can create:
For a bit of background: Way back in 1992, when we all had dial up modems, and the only computer experience I had was this fantastic point-and-click game called The Manhole, the Supreme Court ruled on something now referred to as the Quill decision. This prevented states from imposing use taxes on retailers without a physical presence in their state - basically, it protected catalog sales. Now that e-commerce is an impressive force, online retailers like Amazon.com and Overstock.com use this case to avoid collecting sales tax in states in which they don't have a physical presence (and this is actually a little more complicated - as a Slate.com article 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."
(Let me just say that while I dislike the overall attitude of that article, the information is excellent).
Okay, another example of tricky accounting by a large corporation for financial gain. So what can we do about it, given the Quill decision?
You've probably seen affiliate links on most sites now - even Bookworks offers the arrangement. In this relationship, sales from web traffic directed from a site receive a small commission. Currently, 38 states have pending legislation that would consider an affiliate to constitute physical nexus in a state, allowing it to collect sales tax from that online retailer. Colorado, New York, Rhode Island, and North Carolina have all passed legislation redefining nexus, and Arizona has it coming up this year. Last January, Rep. Eleanor Chavez introduced a bill in New Mexico that would do exactly the same thing here.
Obviously, the sales tax break is attractive for many consumers, but here's the problem: this loophole gives companies like Amazon an unfair price advantage over indie businesses like Bookworks, and even over big-box stores that offer bricks and mortar spaces in Albuquerque. Technically, you're even supposed to pay a use tax on merchandise purchased out-of-state, but this is largely unenforceable - so Amazon has a significant advantage over local businesses that do support our community. We simply want to level the playing field.
Additionally, this University of Tennessee study estimates that New Mexico will lose about $120 million in revenue from online purchases in 2012. This year, we had a significant budget shortfall, and there's currently legislation proposing a $3.9 million cut to arts funding (the Western States Arts Federation (WESTAF) released the results of a study showing that $1M of NMArts grant funding to NM public and non-profit arts and culture organizations had a return of approximately $63M to our state economy).
It's important to note that once states like Colorado started considering affiliates a physical presence in the state, Amazon fired them all - it's fighting hard to keep from paying sales tax.
Eventually, we'll have to recognize that, as Gayle Shanks of Changing Hands says: a sale is a sale, and tax on all online purchases should be collected remitted to our state.
Finally - if you didn't feel like reading all of that, here's a video explanation of some of the many problems with Amazon, including sales tax issues: