Amazon.com The Tax Dodger

Amazon.com, which shut down affiliate programs in a number of states after the states demanded sales tax be charged on purchased routed through the affiliates, is sponsoring a voter initiative in California that exempts online sales from state sales tax. California is the latest state to demand taxes from affiliates. State officials estimate Amazon will owe $83 million in taxes this year, nearly half of the $200 million the state estimates Internet retailers owe overall.

The company argues that sales tax, even if it raises revenue, ultimately hurts investment and job growth -- although crying poor mouth when revenues in the first quarter 2011 (last quarter reported) rose 38% to $9.86 billion probably makes brick and mortar retailers ask if they want some cheese with that whine. Somehow, no doubt using Potter-like spells and potions, retailers manage to charge sales tax to their customers, and presto-chango, customers actually pay it.

Blame the Supreme Court. Long ago, it ruled that customers do not have to pay sales tax for out-of-state purchases if the merchant did not have a physical presence in the state. Oddly enough, New York changed the law to define affiliate programs as physical presences. Amazon filed a challenge in court, but is, surprise, surprise, collecting NY state sales taxes.

Amazon.com certainly has the resources to collect sales taxes from each state and file the requisite quarterly accounting paperwork and funds. Small mom-and-pop internet retailers would be at a considerable disadvantage to do the same. Yet retailers cannot continue to collect tax while Amazon and other internet sellers skip out.

Of course, there is always a third way: national value added tax (VAT).