Amazon.com's Sales Tax Software Troubles
by Edward Nawotka, PW Daily for Booksellers -- Publishers Weekly, 10/8/2003
While Amazon.com and other Internet companies are not yet required to collect sales taxes, the day seems to be coming closer. States with budget shortfalls are craving more tax revenue and have made efforts to simplify the complicated crop of tax calculations, and Congress is currently considering a bill that would allow states to force Internet companies to collect taxes.One company this would explicitly affect is Amazon.com, who at the moment only collects taxes on products sold to customers in Washington and North Dakota. (See how Amazon determines which taxes to collect here: http://snurl.com/2l94
Yesterday's Wall Street Journal carried an opinion piece by reporter Lee Gomes in which he said it was his determination, after speaking with Amazon public relations people and tax officials, that Amazon is "stubbornly resisting collecting sales tax, maintaining that for all practical purposes, it is impossible for it to do so."
In the past, Amazon.com has said that it would take incredible amounts of software engineering to create a program that could fully integrate the more than 7,600 tax jurisdictions around the country. This comment is reiterated in the article. Gomes reports that Amazon "insists it would need to have its entire programming staff--hundreds of engineers--work on sales tax software, and nothing else, for at least 18 months."
Yet, Gomes insists that Amazon is already collecting sales tax on its site, primarily for its partners, which include Toys R Us, Target and Circuit City. The shopping cart on the site will tax purchases from these partners, but not an item, such as a book, purchased from Amazon.com itself. If you change your address, and thus your tax jurisdiction, the shopping cart automatically recalculates tax, leaving one with the impression that a system already exists for calculating tax.
Bill Curry, spokesperson for Amazon.com, told PW Daily that the software Amazon uses to calculate these taxes on behalf of its partners is proprietary, but based on "tax collection information garnered from their [the partners] real world, bricks-and-mortar stores about what's taxed and at what rate."
Gomes suggests that Amazon could use an off the shelf tax software like Taxware from Velosant LP of Boston, who supplies tax software to 1,600 companies, including 100 of the 500 largest companies in the U.S. When Gomes asked Amazon why it can't use that software, the company said Velosant refused to indemnify Amazon against errors, thus putting Amazon at risk of a lawsuit should the software incorrectly calculate tax.
Curry reiterated this fact to PW Daily, adding, "We've looked at all the collection software that is currently on the market is not comprehensive enough. It does not give us confidence to start collecting money from the customer. It is accurate, but not accurate enough. How would you feel that one out of every hundred times you went to the ATM machine, you got $99 instead of $100." He would not disclose whether Amazon's relationships with its partners indemnified them from lawsuits should the partners supply erroneous tax information to Amazon.
Gomes believes that the issue of tax collection is essential to economic equity. Not only does he believe the states need the revenue, he also says that it is important to level the playing field among shoppers by eliminating the fact that "the online sales-tax break is disproportionately enjoyed by the more affluent part of the population, those who have PCs and shop online."
Underlying this argument is the belief that Amazon.com enjoys a competitive advantage over other retailers who collect taxes. Simply put, one expects that more people shop at Amazon.com because they can save on tax.
Curry denies that the lack of taxes offers Amazon any advantage, citing that the company has a "healthy and strong" business in Washington, a state where they already collect taxes.
He added that if the sales tax system were "truly and fairly simplified," Amazon.com would not oppose collecting the tax. "Our business model is not dependent on it," he said.
