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Money to spend; money for taxes

Last week Daily Telegraph City writer Richard Fletcher raised an issue that could change the very nature of internet shopping[1].

The State of California has a budget hole of around $28bn (£17.5bn) to fill. It has, as it scrabbles around finding easy targets, hit on the idea of what is being dubbed ‘an Amazon tax’, whereby online retailers will be forced to collect sales tax at point-of-sale.

So far Amazon has argued that with no physical shops, they are not liable for sales tax at their checkouts, and it’s the responsibility of its customers to cough up when they file tax returns. Apparently less than 1% bother to do that.

All that could be about to change, and change deeply. If other US states jump on the sales tax bandwagon, Credit Suisse estimates that it would cost Amazon 1.4% of revenue ($653m).

Amazon promised to construct six distribution centres in California with around 7000 jobs in exchange for delay in the tax grab. It may not be enough. Other nations are actively looking at taxing online retailers.

Google executive chairman, Eric Schmidt told the Edinburgh Television Festival in August that they paid just £8m corporation tax on a UK turnover of £6bn from 2004-10[2]. Even that is more than Amazon paid, because of its complicated global set-ups of payments/distributions.

It’s just that, till now, nobody has seriously considered taxing online transactions. For many people, it would be akin to taxing fresh air.

All UK-based online outlets pay national insurance, VAT and business rates on properties and staff they employ, of course. Those based in other countries pay equivalent charges, just as high street retailers do.

But the real issues are:

  • should online retailers pay the same corporation and business taxes as physical rivals?
  • would this level the competition between high street and online shopping?
  • could every state tax all transactions into whichever company the money goes, so that the  borderless web becomes obsolete?

References:
[1] The Daily Telegraph – Is the Tax Trap Closing on Amazon, eBay and Google?
[2] The Guardian – Google Crashes TV’s Edinburgh Party.

Photo by Elembis.