Amazon has been subject to criticism over the years for not paying sales taxes. Initially, Amazon and other retailers paid taxes in states where they had a physical presence. By 2017, Amazon began collecting sales taxes for all states that levy such taxes (as we reported here), though the retail giant still does not collect taxes sold by third parties (except in Washington and Pennsylvania.) As Ben Casselman reports in the New York Times, collections at the local level are problematic. This raises important considerations from a local budgeting perspective. Cities are losing property tax revenue and local sales tax revenue as retailers shutter because of losing out to e-commerce like Amazon. Even worse, the lost local sales tax revenue is not being replaced as residents purchase goods online instead of at brick and mortar stores.
Collecting local tax revenue is complicated – in 37 states, local governments can levy their own taxes. But collecting and remitting these taxes is not negotiated as part of the deals between the states and Amazon. A recent report by the Institute of Taxation and Economic Policy outlines some of the challenges. It is important for cities to realize the stakes and work with states and e-commerce to collect taxes. As Casselman writes: “(the issue) is less the fault of Amazon than of state tax systems that don’t require, and in some cases don’t allow, online retailers to collect local taxes.” It’s easy to understand why large retailers may not want to negotiate with each of the hundreds of local jurisdictions – but states can pass legislation or negotiate on behalf of the local jurisdictions within their state. That’s particularly important in states that don’t require collection of taxes unless the business has a local presence.