Cities Struggle to Collect Taxes From Amazon

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It has become commonplace for Amazon.com Inc. (NASDAQ: AMZN) to collect state taxes on purchases, which has been a boon to those states. For years there was a worry that they would need to fight Amazon to get the money.

While states have picked up ground in the collection of e-commerce sales, many cities have been left behind.

According to a new study by the Institute for Taxation and Economic Policy:

Online retailer Amazon.com made headlines last year when it began collecting every state-level sales tax on its direct sales. Savvy observers quickly noted that this change did not affect the company’s large and growing “marketplace” business, where it conducts sales in partnership with third-parties and rarely collects tax. But far fewer have noticed that even on its direct sales, Amazon is still not collecting some local-level taxes. This analysis reveals that in seven states (Alabama, Alaska, Idaho, Iowa, Mississippi, New Mexico, and Pennsylvania), Amazon is either not collecting local taxes or is charging a lower tax rate than local retailers. While this collection gap is troubling on its own, it also suggests that many localities are unprepared to reap the benefits of expanded sales tax collection authority that may soon be coming from the U.S. Supreme Court or Congress. Worse, this lack of preparedness extends beyond the seven states identified above and includes states such as Colorado and Illinois where Amazon collects local tax, but where e-retailers without in-state facilities may not be able to do so.

Some cities where Amazon does not collect local taxes include Pittsburgh and Philadelphia, as well as Albuquerque, New Mexico, and Birmingham, Montgomery and Mobile Alabama.

The study goes on to posit that Amazon has an advantage over local retailers who do collect taxes on product sales. This, in turn, may make the total price of the products bought from local merchants higher. This is, however, a theory that does not have any proof.

There is also no good data on what the lack of tax collections by cities on sales from e-commerce businesses could net them if they could impose taxes at all. Undoubtedly, cities would be helped financially if they could collect this revenue, but whether it help them much financially is hard to tell.

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