For those of you who have been purchasing stuff on Amazon, ensuring you track all of your spending so you can properly pay your Connecticut Use Tax, we have fantastic news! Later this year, Amazon will start collecting it for you and pay the state so you don’t have to do all the work!
Federal law is clear. If you’re an online retailer you do not have to collect sales tax from customers unless you have a physical presence in the customer’s state. That said, some states have a Use Tax, requiring you to pay local sales taxes on items you purchase out-of-state and have shipped to – or brought back to – your home. As an example … Connecticut residents who already paid sales tax in the state where an item was purchased pay the difference. If you were charged 5% sales tax elsewhere, you owe Connecticut the 1.35% difference. If you paid 0% elsewhere, you pay Connecticut 6.35%. Curiously, if you paid more than 6.35% in sales tax elsewhere, there is no rebate provided by the state.
Supposedly, Connecticut Gov. D.P. Malloy (I’m just going to start calling him D.P. from now on) struck a deal with Amazon where they agreed to start collecting sales tax from customers in Connecticut even though they do not have a presence in the state. There is no agreement with any other online retailer that I know of. Malloy noted…
All in all, this is a win for our state’s taxpayers, our main street retailers, and our workforce.
This – of course – is a “win” for state taxpayers since they no longer have to keep track of all their Amazon purchases and pay their Use Tax. I’m assuming that’s what Malloy means since I can’t figure out any other reason it’s a win for taxpayers. Is it a win for retailers? I’m not so sure. Unless you’re looking to shop at a specialty retailer, you still can shop for goods and services online without having to drive to the store – sometimes multiple stores – to pick up what you’re looking for. Having stuff show up at your door in one or two business days is pretty cool. Is it a win for our workforce? We’ll have to wait and see. I see no guarantee Amazon will build a facility in Connecticut.
With the tax issue out of the way, the online retailer will establish an order fulfillment center somewhere in the state within two years, where at least 300 people will work.
The governor said that the deal is not contingent on tax breaks or economic assistance.
This agreement only applies to Amazon, it does not apply to the thousands of small online retailers who do not have a presence in the state of Connecticut. Applying these same rules to small businesses could be devastating and ensure they are killed off. I’m serious. If every state did this you could have that small online retailer trying to figure out sales tax for 50 different states, but it’s worse than that, since many local counties and cities tack on extra points on top of the state sales tax.
So to wrap it up…
- Connecticut taxpayers are directly hit in the wallet, they are paying more. (I was being somewhat flippant with my point above if you could not figure that out.)
- There is no assurance at all local retailers will be helped by this agreement. They still have to compete on price, quality and service.
- There is no assurance Amazon will create 300 jobs in Connecticut.
Now that Amazon has agreed to collect Connecticut sales tax, there is no reason for them to build a physical presence in Connecticut unless it makes business sense to do so. They already have centers in New Hampshire, Pennsylvania, and Delaware, with plans for two state-of-the-art facilities in New Jersey. All of those locations ship UPS Ground to Connecticut in one business day.
So who wins? Malloy and state officials think the deal will bring $15 million per year in additional sales tax to the state, money the state already spent about 10 times over. So in other words, nobody wins and we all lose for the simple fact government gets bigger and more difficult to deal with. Congratulations!