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Amazon's Sales Tax Fight Is Heating Up as States Crack Down

• https://www.bloomberg.com

Amazon shoppers will probably pay sales tax on more of their purchases this holiday season. 

Right now, consumers pay tax on goods purchased directly from Amazon, but they don't in many cases if they buy from third-party merchants on the e-commerce giant's marketplace. That could change on Dec. 1, when some merchants are expected to start collecting taxes in exchange for partial amnesty from back taxes in about half of U.S. states—among them Florida, New Jersey and Texas.

The deadline to apply for the multi-state offer is Oct. 17, and it's not clear how many merchants will sign on. Because so many have complained about the tight timeline, the states are holding a meeting on Wednesday to decide whether to extend the deadline.

But however the drama plays out, all signs point to the eventual closing of long-standing loopholes that let you buy stuff online without paying sales tax.

"We've been waiting many years for the federal government or the courts to tackle this issue and they haven't," says Minnesota Senator Roger Chamberlain. "It's a fairness issue. Right now, there's an unlevel playing field that disadvantages brick-and-mortar stores." Even President Donald Trump has weighed in on the issue, tweeting in August that Amazon was causing "great damage to tax paying retailers."

Amazon.com Inc., which prefers one federal law governing sales tax collection rather than a state-by-state patchwork, declined to comment. 

A 25-year-old U.S. Supreme Court case established the rules many online merchants follow today. The ruling barred North Dakota from forcing Quill Corp. to levy sales tax because the mail-order office-supply operator lacked a physical presence in the state.

For many years, Amazon hewed to the Quill ruling and didn't collect sales tax—even on the stuff it sold itself. But the company gradually changed its position as it built warehouses all over the country, giving it a greater physical presence in multiple states. Amazon now collects sales tax on inventory it owns directly in all states that levy such taxes.

But about half of its sales are goods owned by 2 million merchants posting products on its site. Amazon leaves tax collection up to them and many maintain that's not their responsibility. That's why shoppers pay tax on some Amazon purchases and not on others. 

States have been waiting for the Supreme Court to revisit the ruling or the federal government to clarify the matter with new laws. But the old ruling stands, no bills in Congress have made any headway, and the tax revenue lost to online sales continues to grow. So now the issue is playing out one state at a time.

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