President Donald Trump attacked Amazon again on Wednesday, saying the e-commerce giant is responsible for killing jobs and damaging “tax paying retailers.”
While 140 characters can’t capture the nuance of Amazon’s complex tax situation, Trump’s claims aren’t entirely baseless and could potentially gain support from a number of states.
Amazon currently collects sales tax in every state where it’s required for the products the company actually sells. But more than half of items purchased on Amazon come from third-party merchants, who use various parts of Amazon’s storage, payments and logistics systems and generally aren’t required to collect sales tax.
That tax-free zone gives Amazon sellers a significant edge over physical retailers, who are already struggling to stay afloat.
“It is an unfair advantage that’s killing retailers, especially small businesses and specialty retailers,” said Paul Rafelson, a state and local tax attorney and adjunct law professor at Pace University in New York.
Online merchants don’t have to collect sales tax if they don’t have a physical presence in a particular state. It gets tricky for sellers on Amazon’s marketplace.
For businesses using Amazon’s warehouses and delivery network, the sales tax requirement could get triggered if their products are stored in an Amazon facility in certain states.
Some states are now arguing that Amazon should be responsible for collecting tax on behalf of its third-party sellers because the company controls a huge part of the sales process, including payment processing and customer support. As CNBC reported on Tuesday, South Carolina recently filed a complaint alleging $12.5 million in unpaid taxes for the first three months of 2016.
Washington and Minnesota have already passed laws to tax marketplace sales.
“Everyone in retail agrees somebody should be collecting the tax,” Rafelson said. “The question is: Is it Amazon’s or the third-party sellers’ responsibility?”
Retailers have been getting hammered by a series of stores closures and job losses. Big-box stores like Macy’s and Sears have shut down hundreds of stores, while chains like Payless and RadioShack have filed for bankruptcy this year.
Meanwhile, Amazon has grown to become one of the world’s most valuable companies and is pledging to hire 100,000 workers over the next 18 months.
Trump’s battle with Amazon started on the campaign trail. As the Republican nominee, Trump lashed out repeatedly at Amazon’s chairman and CEO, Jeff Bezos, claiming that he was somehow using a tax shelter at the company to prop up The Washington Post, which Bezos owns.
The Washington Post serves as a frequent whipping boy for Trump and his Twitter attacks on “fake news.”
In July, Treasury Secretary Steven Mnuchin hinted that the administration is taking a look at Amazon’s tax status.
“So this is an issue that we’ve been looking at very carefully within the administration, and we expect to come out with a position shortly,” Mnuchin told Congress. “I am encouraged that Amazon is now charging tax, I believe, on their own sales but not the marketplace. I’m not sure I understand the consistency on that, but I respect the states’ ability that there’s an awful lot of money that’s not being collected.”