BEFORE finally settling on Seattle as the home of Amazon.com, founder Jeff Bezos briefly considered placing it on an Indian reservation near San Francisco to avoid collecting taxes. But Mr. Bezos learned that the reservation couldn’t be used as a sales-tax haven after all so he had to look elsewhere. Offering prices free of sales tax to customers in California, the most populous state, was the goal, and that would be possible only if the company were placed elsewhere.
Today, Amazon manages to collect sales tax in only five states, which gives it a continuous advantage over companies who have to collect them in all or most states. And competitors aren’t the only ones damaged by Amazon’s stance on sales taxes. Such a stance also means the loss of considerable revenue to states and localities that badly need it, especially now.
The final count of this holiday season’s sales are not yet complete, but Amazon’s revenue for the four previous quarters, ended Sept. 30, was approaching $21.7 billion. Amazon refuses to disclose how much tax it collected on those sales. But Amazon has found a way to put portions of its business into the tax-haven equivalent of reservations like the one Bezos was contemplating using as headquarters. By creating different wholly owned subsidiaries for the parts that are treated separately for tax matters, Amazon is under no real lawful obligation to collect sales tax. This legal technique is called “entity isolation.”
Amazon’s laughable arguement is that the complexities of sales tax collection are too overwhelming. But the company already handles the online sales of its partner, Target.com. It collects sales taxes for all but two states that assess them.
Amazon’s in-house counsel should think about helping the company meet its civic obligations — and tossing this “entity isolation” idea. Amazon’s employees are far too scattered, its customer base and its sales too large, and the states’ fiscal crisis too grave for it to continue playing these tax-avoidance games. Courtesy of nytimes.com