Consumers

Amazon.com to begin collecting Iowa sales tax Sunday

Customers will be charged 6 percent by online retailer

Amazon.com boxes in Cedar Rapids on Thursday, Dec. 29, 2016. (Photo Illustration by Liz Martin/The Gazette)
Amazon.com boxes in Cedar Rapids on Thursday, Dec. 29, 2016. (Photo Illustration by Liz Martin/The Gazette)

If you are planning to make a large purchase on Amazon.com, you might want to consider doing it before Sunday.

The giant online retailer has notified the Iowa Department of Revenue it will begin to collect Iowa’s six percent sales tax on purchases made beginning Jan. 1. It already collects sales tax for purchases made by residents of 29 states and the District of Columbia.

The company will start to collect sales tax in Nebraska on Jan. 1, too.

“Honestly, Amazon contacted us and agreed to do this,” said Victoria Daniels, spokeswoman for the Iowa Department of Revenue.

Amazon will not collect the local-option portion of the sales tax at this time, she added.

Iowa law requires companies with a “nexus” in the state to collect sales tax for online purchases. That means retailers with a brick-and-mortar presence such as Barnes & Noble, Target and Wal-Mart must collect sales tax on their online orders.

For retailers such as Amazon that do not have a physical presence here, the burden has been on the customer to send the state an equivalent use tax — though few actually do.

But Amazon’s decision to collect sales tax in Iowa is not a deal-breaker for Jess Parizek of North Liberty.

“It’s doesn’t bother me a bit,” Parizek said. “Amazon is easy for me. I work at the University of Iowa, so even though it’s 11 miles for me, it’s still a 45-minute commute. The last thing I want to do is go get groceries or swing into Target.

“I have Amazon Prime, which allows me to pay for it and it comes to my door.”

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In addition, Parizek, who has friends working for UPS and the postal service, feels she is helping to keep them in business.

“If I went into Target, I would have to pay sales tax,” she said. “I might walk up and down the aisles and walk out with $100 worth of stuff that I really don’t need.”

Daniels said the Department of Revenue is not sure how much additional Iowa sales tax revenue will be collected by Amazon.

“When we looked at the impact of federal legislation several years ago requiring online retailers to collect sales tax, we came up with a very conservative estimate of $18 million to $24 million,” Daniels said. “We know that Amazon is a large share of that market, so it could be slightly below the $18 million mark — not an insignificant amount.”

While Seattle-based Amazon’s decision to charge sales tax in Iowa will bring more money to the state, Daniels said the real issue is one of fairness.

“Our local businesses pay property tax, employ people and benefit from services in the community,” Daniels said. “Then you have these remote sellers who come in and take a market share away from our local businesses.

“One of the original pieces of federal legislation (requiring online retailers to collect sales tax) was called the Main Street Fairness Act. The closest we got was in 2013 when the U.S. Senate passed the bill.

“With the shift in the political makeup since then and the most recent election, people are speculating that the soonest it could happen at the federal level will be 2026.”

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Traditional retailers have complained for many years that online retailers such as Amazon and Overstock.com have an unfair advantage because they can undercut brick-and-mortar competitors on price by not collecting sales tax. Because e-commerce is such a relatively young industry, it has been hard to determine whether shoppers take the lack of sales tax into account when deciding where to buy.

The Washington Post reported that shoppers spent 8.3 percent less for products on Amazon after their state began requiring e-commerce sites to charge sales tax, according to Ohio State University research of household spending data in 19 states.

The researchers described that drop in spending as a “permanent decline” even though shoppers’ total spending remained essentially unchanged. Shoppers were spending the same amount overall on Amazon purchases, but because a portion of that tab was now going to taxes, the customer was getting less product for their money and Amazon was receiving less revenue from the sale.

Charging sale tax had an especially chilling effect on big-ticket Amazon purchases of more than $250, the study found. On those transactions, Amazon sales declined 11.4 percent after the retailer began collecting the tax.

WHO PAYS

Amazon.com collects sales tax from customers in 29 states — Alabama, Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Carolina, North Dakota, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, West Virginia, Wisconsin — and the District of Columbia.

The online retailer has notified the Iowa Department of Revenue that it will begin collecting Iowa’s 6 percent sales tax on purchases beginning Jan. 1. It will not collect the local option portion of the sales tax at this time.

Amazon.com does not have a nexus or physical presence in Iowa. The company operates fulfillment or sorting centers in Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Hampshire, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington and Wisconsin, according to TaxJar.com.

l Comments: (319) 398-8366; george.ford@thegazette.com

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