N.Y. Lawmakers Near Vote on 'Amazon Tax' - Page 3

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The revenue crush and tax maze

States are pushed to measures such as New York's tax law clarification from the need to turn red ink black.

"A lot of states are trying to get revenue from out-of-state companies," said Joe Henchman, tax counsel at the Tax Foundation, a Washington, D.C.-based nonpartisan research and educational organization.

But Henchman warns against what he calls "exporting the tax burden to out-of-state companies."

He argues that the current U.S. tax system, with about 7,400 different state and local sales taxing jurisdictions, is in desperate need of reform. In an age of global trade and point-and-click shopping, Henchman believes that a system of taxation based on geographical boundaries is a "square peg in a round hole."

Henchman won't be alone in lamenting the implications. In 2000, revenue officials from a number of U.S. states banded together in an effort to address bewildering discrepancies in which goods are taxed in different jurisdictions, and the rates at which they're taxed.

The resulting Streamlined Sales Tax Project, which aims to put pressure on Congress to simplify the tax code, now counts 17 states as full members of its governing board and five as associate members. New York is not a member.

Like Streamlined, Amazon similarly argued in favor of simplifying tax rules while making its case to New York legislators. The company claimed that it did not object to collecting taxes in principle, but that the complexity of existing laws -- once applied to Internet shopping -- would entail unreasonable expense.

In addition to Washington state, where it is based, Amazon collects sales taxes on purchases shipped to North Dakota, where it has a call center. It does the same for shipments to Kansas and Kentucky, where it maintains distribution centers.

Bills based on recommendations from Streamlined have repeatedly stalled in Congress, and Potrikus of the Retail Council said Amazon's show of support for the project was somewhat disingenuous.

"The national solution is so bogged down in different warring, bureaucratic factions," he said. "It's easy to take something that you know isn't going to work and hold it up as a solution. Streamlined has become more of a dodge at this point than a solution."

Henchman, who opposes the New York provision, doesn't see Streamlined as a solution, either. He criticized the project for linking jurisdictions to nine-digit ZIP codes, which he said reinforces artificial and obsolete economic boundaries and fails to whittle down the number of tax codes to a level that merchants can be expected to navigate.

Absent the type of sweeping reform that Henchman envisions, or even the success of the comparatively moderate Streamlined project, states will be closely watching New York's moves -- to see whether lawmakers give the provision the thumbs-up, and if so, how it fares in an anticipated legal challenge.

Assuming the interpretation is not overturned, and if revenue rises as the governor's budget predicts, other states can be expected to take a more aggressive approach toward e-commerce taxation.

"If New York adopts this, then other states are going to do it, too," Henchman said.