Revelations about Amazon’s tax status have brought the complexity of taxing web-based firms into the public eye. The Amazon group posted sales in the UK for 2014 of £5.3billion, but, thanks to some astute accounting, its British-based Amazon.co.uk Limited subsidiary recorded a profit of just £34.4million and tax of £11.9million.
eCommerce is an incredible challenge for tax administrators, and one they have, on the whole, yet to get to grips with. The technological revolution is only deepening, and more companies are doing business directly online. The regulations around it are subsequently becoming more detailed as governments try to keep up with the pace of change. For US companies, things are further complicated by the increasingly elaborate web of sales tax laws, and how they pertain to web-based firms.
Federal law in the US currently requires a retailer collect taxes only in states where it has a physical presence, for example a store or warehouse. Many bricks-and-mortar stores claim that this gives online retailers an unfair advantage, and The Marketplace Fairness Act of 2015 is currently being looked at by congress in a bid to redress the balance. The Act gives the option to require out-of-state businesses, such as those selling online or through catalogs, to collect and use taxes already owed under state law the same way local businesses do. States generate roughly 32% of their revenue from sales taxes, so the idea that this huge source of revenue should dwindle is heinous to many. More than 20 states have passed so-called Amazon laws to expand the definition of physical presence and force more e-tailers to collect the taxes or inform consumers how much they owe.
For CFOs at eCommerce firms, this could present a huge problem. There is more than 100,000 changes to sales tax in total per year, and keeping up with such a vast number is outside the capabilities of the majority of companies, particularly firms looking to expand across state lines. Joe Albanese, CFO at Cleveland-based AmeriMark, which operates 10 catalogs and seven websites, notes that the legislation would force the company to calculate each state’s rates, tax holidays and exemptions - on top of the cost of updating software, integrating systems and hiring staff to check dozens of additional tax returns, which Mr. Albanese estimated would cost the company $500,000 a year.
There are options available. Automation is one avenue that many bricks-and-mortar stores are going down in order to simplify the process, and this should be even easier for companies born in tech, as it were. There is also every chance that The Marketplace Fairness Act of 2015 will fail, as it did when it was last put forward in 2013.