Online sales in the United States have increased by over 250 % in the last ten years, reaching over 250 billion dollars in 2012. Spearheaded by Amazon. com, Inc. (“Amazon”), online retailers have fed off their competitive advantage of avoiding local sales tax, and have grown to capture roughly seven percent of the retail market. The juxtaposition of this upsurge of untaxed online sales and our nationwide recession has prompted state governments with crushing deficits to take on the tax loophole.
Local governments across the U. S. have passed legislation to enforce online sales tax collection, referred to as “Amazon Tax Laws,” as they are targeted toward the nation’s leading online retailer—and tax avoider. In challenging the constitutionality of the laws, Amazon has relied upon legal precedent in the Supreme Court decision in Quill Corp. v. North Dakota, requiring in-state physical presence for the collection of state sales and use taxes. In addition, in all states except New York, Amazon has dropped its relationships with local affiliates to eliminate the applicability of the laws. In fact, Amazon built its empire strategically, with remote warehouses, employee seclusion, and entity isolation, all designed to prevent the creation of such nexuses within highly populated states. After beginning potentially the greatest of its tax battles against the state of California and its Amazon Tax Law, Amazon struck a deal: The company agreed to delayed taxation in return for the right to open local warehouses. Across the country, Amazon has started striking similar deals with state governments, enabling it to move warehouses closer to its metropolitan customer bases, and has begun backing federal legislation for uniform interstate sales taxation. Establishing its physical presence across the states, Amazon is seemingly revamping its strategy, trading its tax-free advantage for record delivery times, and taking on traditional brick and mortar retail on a new front.
This Article will evaluate: (i) the legal precedent that supported tax-free interstate sales and the growth of the online industry; (ii) the first successful implementation of online sales tax legislation in New York, spurring Amazon Tax Laws across the states; (iii) Amazon’s aggressive state tax avoidance policies; and (iv) the shift in Amazon’s strategy to move warehouses in-state and submit to local taxation, leading to the next phase in the evolution of the U. S. retail paradigm.