The battle between online mail order companies like Amazon, and states that wish to collect sales tax on every order, has been in contention for many years. The current law only requires the collection of a state sales tax if the company has a physical presence in a state, e.g., employees or physical company building[s]. In states where Amazon has a distribution center, the states contend these physical locations meet their definition of nexus. Amazon contends that the fulfillment centers used to ship goods to consumers are subsidiaries and do not constitute a physical presence.

In 2002 I took a college public speaking class to sharpen my skills, since I was in a position to teach computer related classes at our local junior college. One of the speeches I decided on was this exact same issue about taxation by states of Internet mail order companies. During the last ten years little has changed in what the states believe are a physical presence and what online retailers claim is an actual physical presence.

In my research for the speech I made, there were two issues I presented. First you have 50 states with a multitude of different counties, parishes, etc., that have different tax structures. Trying to collect taxes would be an accountant’s nightmare. The second problem is that many of the online retailers are mom and pop operations without the resources to collect state taxes. Imposing such a burden could effectively put smaller online businesses out of business.

In order to effectively have a tax system that would be equitable to all states, every state would have to agree to a single tax rate. This would require Congress to establish a federal mandate that every state would then need to agree with. Such a Congressional and state agreement is highly unlikely due to the political climate that exists between the ruling political parties.

In the meantime, Amazon is threatening states where its fulfillment centers are located with closing the distribution centers if the states insist on collecting taxes. This in turn would increase unemployment in those states where Amazon currently distributes online orders.

To me this seems like a lose-lose for both Amazon needing to relocate facilities and for the states in which job losses could occur.

Comments welcome.