More states push to end the Amazon tax loophole. Will Oklahoma join them?

The state budget crisis has put nearly all public services under intense scrutiny. With most state agencies taking cuts of 15 percent or higher, and more cuts expected, public officials have been forced to streamline operations, eliminating both waste and many useful programs.

With states hurting everywhere, they are also beginning to look at holes in the tax code that lack any good rationale. One glaring example is sales tax collections for online purchasers. Many states, including Oklahoma, require residents to pay taxes for online purchases, but they put the burden on individual taxpayers to identify how much tax is owed when filing their tax return.

Collecting in this way is highly inefficient, and it subsidizes large online retailers like Amazon at the expense of Main Street businesses who directly employ Oklahomans. Since they aren’t required to include sales tax in their prices, online retailers are able to undercut local business and move more money out of the state. Untaxed remote sales also starve state and local governments of resources – an estimated $92.7 million for Oklahoma in 2009, rising to $156.3 million in 2012.

The US Supreme Court ruled in 1992 that retailers who lack a physical presence in a state, or “nexus,” cannot be required to collect tax. In response, several states have expanded the definition of “nexus” to include affiliate programs, such as when Amazon pays a commission for links that result in sales.

Even in states where Amazon does have a nexus, the company has tried to avoid taxes. The Center on Budget and Policy Priorities found that Amazon charges tax in only four out of seventeen states where it operates facilities. Texas recently billed Amazon for $269 million in uncollected taxes when it discovered the company was operating a warehouse in the state through a subsidiary.

The fight is heating up. Every state bordering Oklahoma has either required Amazon to collect sales tax or cracked down on the company’s tax avoidance strategies. Most recently, Arkansas passed a bill to require online retailers that have affiliate programs and make more than $10,000 a year in sales to collect sales tax. Similar legislation has passed in five other states and is being considered in at least 10 more.

Amazon ended affiliate programs in several states and closed down its warehouse in Texas. Yet with more states and local retailers joining the fight against the exemption, it may not be long before Amazon loses the ability to play some states against others.

Oklahoma continues to struggle with balancing its own budget, and Gov. Fallin has called for more ideas on how to protect core services from harmful cuts. Just as difficult budget years can push us to make government programs more efficient, it is a good time to close unfair loopholes in the tax code. While we may end up paying a little more for online purchases, the benefits to local business and the reduced strain on public services will make us all better off.


Gene Perry worked for OK Policy from 2011 to 2019. He is a native Oklahoman and a citizen of the Cherokee Nation. He graduated from the University of Oklahoma with a B.A. in history and an M.A. in journalism.

16 thoughts on “More states push to end the Amazon tax loophole. Will Oklahoma join them?

  1. While I agree that something needs to be done about sales tax issues with online retailers, I think it is not productive to treat Amazon as some kind of “Tax Witch”. After all, that is what this is becoming, a witch hunt by various state governments with Amazon being the token witch.

    I think it would be best for the individual states to stop trying to collect directly from online retailers. The States do not have the Constitutional authority to collect taxes from interstate commerce. Only the Federal government has that authority.

    What the states should be doing is working with the Federal government is to establish a Federal sales tax to be levied on interstate and online commerce with a portion of those taxes going back to the states. Unfortunately the power for state governments to appeal directly to the Federal Government was severely weakened with the passage of the 17th amendment.

  2. Who is kidding who? Most states have sales taxes on internet purchases but they have not enforced them. So implementing compliance is really just a new tax on consumers that is highly regressive. The less you make, the higher the percentage of your income this tax will take. We should all stand against regressive taxes and support a tax system that collects on the basis of ones ability to pay.

    Internet and catalog sales should remain sales tax free. The federal government must not help create a new tax system on on Interstate Commerce.

  3. The problem with this is that, pragmatically, it’s a slippery slope. If states can regulate interstate commerce, what’s stopping municipalities from doing the same?

    Its hard enough for retailers to keep up with state taxes (many states have specific exemptions for clothing within a certain dollar amount, food etc.), but keeping up with every city/town/village and what their tax laws are would effectively paralyze online commerce.

    There are a bunch of other issues wrapped up in here as well… for example, If I’m a college student, and I come to OU from Texas, buy something online and ship it to my dorm, but still have a billing address in Texas… who gets the sales tax?

    Ultimately, we have an old and antiquated tax system that we are attempting to “fix” by slapping bandage upon bandage on it. We need a major update, not a bunch of quick fixes.

  4. Simple solution – the online businesses collect the sales tax for the State/City in which the selling office is located. Then online sales become the same as brick and mortar sales – buy an item in Dallas, Texas pay Dallas, Texas sales tax regardless of the fact the item is being brought back to Oklahoma. In the same way, order from a company sales office in Dallas, Texas pay Dallas, Texas sales tax regardless of where the item is shipped.
    How does this help Oklahoma? Eventually the online companies will begin to locate their sales points (call centers) in States and Cities that have the lowest sales taxes.

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