Last week, I bought a new kitchen faucet from amazon.com instead of homedepot.com. Not because I didn't have to pay the sales tax - state law requires me to remember this purchase a year from now and add the equivalent of the sales tax on my income tax return - but because it cost $72 less even before the sales tax was added at homedepot.com. The sales tax made it look to anyone who didn't think about state law like my faucet cost $100.82 less at Amazon.
And I thought to myself: Does anyone really believe that charging a sales tax to Amazon's meager list of S.C. customers is going to hurt a company that routinely underprices its competitors by that much? A company that wins sales over lower-priced competitors because it's a household name? And Amazon is going to walk on the sweet deal we already offered to build a distribution center in Lexington County if our Legislature doesn't agree to bash another hole in our sales tax policy - for Amazon and who knows who else? Seriously?
Amazon is serious all right, but not because charging the sales tax to S.C. residents will hurt its S.C. sales. This is part of a much larger fight that Amazon suddenly finds itself defending across the nation.
Online sales are a special, growing problem to states because they're the fastest-growing segment of the retail economy and the U.S. Supreme Court says a state can't make businesses collect taxes from its residents unless they have a physical presence, or nexus, in that state. University of Tennessee economist Bill Fox projects that South Carolina will lose $569 million in state and local taxes from otherwise taxable online purchases between 2007 and 2012; nationally, he puts the figure at $52 billion.
Amazon long has insisted that its distribution centers don't count because they're owned by subsidiaries, but South Carolina rejected that argument by other retailers years ago. In fact, it's so clear that the affiliate argument doesn't wash here that when the state was courting a QVC distribution center in 2005, the Legislature felt compelled to pass a law that said a distribution center did not create a nexus. That law expired last year, and Amazon is demanding that it be reinstated.
Meanwhile, across the country, states are debating and passing laws to make Amazon start collecting the tax. And across the country, Amazon is threatening retaliation.
Last month, Illinois Gov. Pat Quinn signed a law that goes far beyond ours, requiring online retailers to collect taxes if they merely pay local blogs to steer customers their way. In Texas, Amazon responded to the state comptroller's demand for $269 million in uncollected sales taxes by threatening to close a distribution center this month; state legislators responded by putting forward legislation to make it clear that online retailers have to collect taxes even without a distribution center, if they have those website affiliates.
The New York Times reports that New York, Rhode Island and North Carolina have adopted laws similar to Illinois'; Amazon is fighting New York in court and ending its affiliate website programs in the other states. New Mexico, Minnesota and Vermont are considering similar legislation, and the governors of California and Hawaii vetoed similar bills after Amazon threatened to end its affiliate programs. The company collects sales taxes in Kansas, Kentucky, North Dakota and Washington state, where it has offices.
Like many of the company's supporters, Lexington County Council Member Todd Cullum argues that what's going on in other states is the reason we should give Amazon what it wants - well, that and the 1,200 jobs and more than $1 million a year in local property taxes.
"For us to take this stand and say you're not gonna be able to operate unless you collect the tax for us - OK, so 1,200 jobs go away," Mr. Cullum told me earlier this week. "I'm placing myself at a disadvantage because (practically) nobody else out there is making them collect it. And until this is addressed at the federal level, I think we ought to be operating like everybody else now."
Mr. Cullum didn't convince me with his ends-vs.-means argument; the logical end of that argument is to forgive a company all of its taxes if it'll just grace us with its presence. But I do admit it's uncomfortable to oppose a relatively inexpensive tax break based on nothing more than the fact that it's the only principled thing I can do, after more than a decade of consistently opposing special tax breaks, fighting the erosion of the sales tax in particular and encouraging efforts by states to make online retailers collect sales taxes. And I agree with him on one point: We need congressional action.
Even if South Carolina and all the other states stand firm against Amazon's affiliate argument, all we'll do is force a few big companies to start collecting the tax in more states. We won't solve the problem of untaxable sales by all those businesses that don't have even a tangential nexus in most states. That, the court made clear, can be done only by the Congress.
But states have been trying for nearly two decades to convince the Congress to act, and Amazon (yes, Amazon) and other national retailers say they want federal action, but it hasn't done any good - perhaps because they haven't been motivated to fight hard enough.
Maybe what we need is to give the online behemoths some more motivation. And if the state that's known for its low wages and high unemployment and its tendency to do anything for jobs refuses to surrender our ability to collect a tiny little bit of the sales tax we're due, then just maybe that'll embolden other states to keep fighting, or to join in.