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Originally published Saturday, July 23, 2011 at 9:38 PM

Jon Talton

Amazon.com makes a taxing argument

Amazon is mounting its most aggressive fight yet, supporting a voter initiative in California to repeal that state's new law that requires large online retailers to collect sales taxes.

Special to The Seattle Times

quotes 1. Amazon is only following a ruling of the Supreme Court. So, please, do not blame... Read more
quotes I did taxes for a small corporation that did about $1M per month in sales nationwide... Read more
quotes Zero1 - You don't necessarily have to break any law to be a deadbeat. GE has amply... Read more

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When I lived in cities without Seattle's bounties, I learned to be a civic consumer. If I wanted local stores in my neighborhood, I knew I had to patronize them. I might pay a little more up front, but they provided a much larger reward to the community than chain-store America based in cities far away.

As a Seattle resident now, I am put in a box by Amazon.com, just like another product running down the line of a "fulfillment center."

On the one hand, this is a company, along with Wal-Mart, that has done so much to shatter local shops and community, even adding the Borders chain to its body count. On the other hand, Amazon is a Seattle corporation. Even if it lacks much interest in engaging with the city, it is responsible for thousands of good-paying jobs and a big chunk of the South Lake Union office boom.

Jeff Bezos could care less about me and my sensibilities. (Disclosure: My mystery novels are sold on Amazon as well as in traditional bookstores.) He cares a great deal about not accepting a responsibility that is a given for most other retailers: Collecting sales taxes.

He doesn't really put it that way, instead cloaking it in the fiction that this huge company can't handle the bother of complying with different laws in each state. "Our point of view on this is that we should simplify the sales-tax system, and we've been consistent on this for about 10 years," he told Consumers Reports in May.

The company claims it favors a streamlined system that would make rates more uniform nationwide. It also works hard to avoid a sales-tax requirement by using wholly owned subsidiaries for warehouses and labs to claim it doesn't have a physical presence in many states. It does pay sales tax here in Washington, as well as four other states.

Now Amazon is mounting its most aggressive fight yet, supporting a voter initiative in California to repeal a new law that requires large online retailers to collect sales taxes. The state is the nation's largest retail market and a historic trendsetter in public policy and much else. It expects to collect $317 million in the first year.

The usual bluster about withholding jobs at a distribution center — as happened in South Carolina — wouldn't work. Neither would the company cutting off thousands of so-called affiliates, local sites that get a piece of the revenue when a customer links to Amazon.

That's because Amazon has in the Golden State what the Supreme Court termed a "substantial nexus," a case setting out the circumstances where an out-of-state company must collect sales taxes. As Farhad Manjoo reported in Slate, Amazon' search engine is built by A9 in Palo Alto. Lab 126, in Cupertino, Calif., designs the Kindle.

What Amazon has on its side are the anti-tax sentiments of Tea Party America and California residents that crave its low prices. As Manjoo wrote, "Amazon has no intellectually sound arguments against collecting taxes from residents — by all ethical and civic standards, its position is unsound. Instead, Amazon is counting on our emotions prevailing — on loyal, tax-savvy customers like me lashing out at our price-hiking legislators."

California isn't the only front in Amazon's struggle. It has followed a New York law passed in 2008, which has yielded $250 million from Internet-only retailers. But, according to the Los Angeles Times, this is because Amazon wants to challenge the law in court.

The stakes are high. Amazon said in financial filings that if even one state is successful in the push to collect sales taxes, it would "result in substantial tax liabilities for past sales, decrease our ability to compete with traditional retailers and otherwise harm our business."

The stakes are equally high for the public, as revenue-starved states cut funding for schools, parks, libraries, transit and public safety. "Greedy" public workers are convenient targets, even as nearly half a million of them have lost their jobs since 2008.

Big corporations expend vast resources to legally avoid taxes. General Electric, whose chief executive is one of President Obama's economic advisers, paid no federal taxes in 2010. A study by the General Accountability Office in 2008 found that 55 percent of American corporations paid no federal income taxes in at least one year of the seven years it analyzed.

This may produce a temporary edge, but at a substantial cost. As education and infrastructure continue to be weakened, America will become less competitive. Fewer jobs will be created and wages will continue to stagnate — we're already witnessing this. And consumer demand will shrink. The full consequences may take years to play out.

In the meantime, let us treat Amazon delicately, lest Bezos decides to decamp for the welcoming Lowcountry of North Charleston, S.C.

The biggest irony, of course, is that the Internet, Amazon's bricks-and-mortar, was born thanks to years of taxpayer-funded investments.

But that was another America. A place where a company acting like Amazon would risk being called a different name: Deadbeat.

You may reach Jon Talton at jtalton@seattletimes.com

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