I find this whole Massachusetts scenario to be morally bankrupt, but I said from the beginning that this would happen. You should also know that because Mass has this info, it can share it with all of the states (Amazon knows this), so it’s not like California has to fight Amazon for your information, because they can get it from Massachusetts.
But, I’m not saying this so I can out fear monger the other fear mongers, in fact, it’s quite the opposite. I have full confidence that any attempt by Mass., or any other state, to assert nexus over a third-party seller is in direct conflict with, The Commerce clause and The Due Process Clause, of our seemingly forgotten Constitution.
I have full confidence in the Constitution of the United States
Why do I feel such a sense of reassurance? Well, simply put, states cannot run an entire economy of over a million entrepreneurs out of business just so it can collect a tax when the state has a much less cataclysmic way of accomplishing the same objective. This is was essentially the Court’s holding in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970). Let’s start with the holding:
If a legitimate local purpose is found [taxation in our case], then the question becomes one of degree. And the extent of the burden that will be tolerated will, of course, depend on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities.
I couldn’t have said it better myself. In essence, what the Supreme Court is telling us here is that, when a state has a legitimate interest, such as taxation, some burden on interstate commerce is expected. However, the state’s ability to burden interstate commerce is not carte blanche, simply because the state has a legitimate local interest. Depending on the severity of the burden the states are placing in order to effectuate their legitimate local interest, the Court will have to balance that burden and consider whether the burden is appropriate, and will look to whether less burdensome means exist.
In our case, the states have an interest in collecting sales tax, but they are literally choosing the most extreme and burdensome way possible to effectuate that interest. The states are choosing to destroy a new class of over one million businesses, putting a lot of people out of business, and putting them in a position where they will have to rely on government assistance, and may never bounce back. Seems pretty extreme, especially considering that less burdensome means exist, such as holding Amazon accountable, either under current law or by passing marketplace legislation.
Another way the states could have collected sales tax in a less burdensome manner was via the MTC and have them develop and administer a solution, in conjunction with Amazon, that plugs into the Amazon API. If the states and the MTC worked together to develop a small seller solution that was reasonable, I doubt we’d be in this situation. Of course, that’s not what Amazon wants, because they really don’t want sellers to comply, and will do their best to delay it as much as possible.
It seems that the only path the states are willing to consider is mass destruction, which fortunately for us is not constitutional. Compared to the commerce clause burdens at issue in Pike, the burden states are placing on sellers is exponentially more destructive.
Pike was about whether an Arizona Cantaloupe producer who packed his product in California, was prohibited from labeling his produce as originating in Arizona because it was packed in California. This meant that the only way for the Cantaloupe producer to label his fruit as originating from Arizona was to build a fruit packing facility in Arizona for $200,000. The Court found that economic burden to be too much, and ruled in favor of Pike. So, that should give you a little bit of confidence that if the Court was gravely concerned about one produce company, they probably are going to be concerned about 1 million sellers!
One last thing about Pike- it’s not a tax case, it’s a commerce clause case. Physical presence is not the end of the taxation analysis, it’s actually the start. Physical presence is a floor. If states can’t show physical presence, then discussion over, move on. However, if they can, cases like Pike still apply and can be invoked to say, well not so fast, just because you are allowed to place a burden on the taxpayer, that doesn’t mean you can burden the shit out of them.
So, for example, imagine a state that had a law which said something like: if you have physical presence you must collect sales and use tax. AND, all tax filings must be hand delivered, in person, by the CEO of the company to the state’s revenue office in Honolulu Hawaii. Is that tough luck for the CEO, you have a physical presence, so you have to do what the state tax law says? Or, is there another law of commerce clause protection, like the one in Pike that says you can’t do that because you can still satisfy your legitimate interests by mailing the return? Physical presence is not the end of the world.
Have faith in the Constitution of your country. That these protections are in place, and that they apply to you. Where we fail in this effort is not seizing the opportunity to band together, and assert those rights collectively, and preventing the states from using bullying tactics, so they can hunt us down one by one.
But what about Massachusetts?
Now, Let’s Talk About Massachusetts Law as they clearly chose massive and destructive burdens over less destructive means to fulfil their legitimate interest in collecting tax. FBA sellers, please read the definition of a sale below as stated in the Sales Tax Statutes of the Mass. General Laws.
This is an excerpt of Mass. Gen. Laws. 64H, Section 1 Definitions. The law defines a sale for sales tax purposes as follows:
”Sale” and ”selling” include (i) any transfer of title or possession, or both, exchange, barter, lease, rental, conditional or otherwise, of tangible personal property or the performance of services for a consideration, in any manner or by any means whatsoever…
That’s what jumped off the screen when I took a first look at the laws in Massachusetts. Curious what you think?
This is simply the definition of a sale, so we aren’t even getting into who the retailer is, because if you don’t make a sale then the retailer point is moot. I’m 99.999% sure either or both of those factors highlighted above are controlled by Amazon, not the third-party “sellers.”. So, under Mass. law I’m not even sure they can say you are even selling/making a sale.
Without being able to establish that basic fact that you are “selling” then it seems unlikely that Mass. could hold you accountable for the tax. Now, I’m sure their lawyers could get creative, but it would still be an uphill battle to assert that because complex interpretations of the tax law really can’t be expected from a mother in rural Kentucky with barely a high school education that saw a YouTube video and started selling on Amazon. She simply cannot be held to the same level of tax sophistication as a company like Walmart who has huge operations in every state.
The same would likely apply to most sellers because you aren’t a national operation, you are a single state operation, maybe 3 states at most.
I may have said this to you before, so I apologize if it’s repetitive. This whole Mass. thing is a dog and pony show. It was a mutually agreed upon lawsuit designed to serve the needs of both Amazon and Massachusetts.
This request for vendor/seller information sent to Amazon from Mass. isn’t controversial, and would typically be turned over without question. The reason this isn’t a surprising a request is that this type of information is not what we call “privileged” and the state is entitled to it. Most likely this would have been turned over quietly, and I suspect that may have happened already with Washington.
The reason this has been made so public is that Amazon wanted to generate legal cover by being able to say things like “binding legal demand.” They are trying to paint a picture that they fought this and eventually was compelled. It’s a way of insulating them from liability should sellers sue saying Amazon didn’t protect their information. Amazon can point to the lawsuit and say, “look we tried really really hard to stop it.” No, they did not, they just want it to look that way.
Of course, Massachusetts doesn’t mind suing Amazon because they are about to unleash the biggest incentive package known to man, including a possible renaming of the Red Sox to the “Amazons.” One of the last things I worked on at GE was moving their headquarters from Fairfield, CT to, coincidentally, Boston. Given Amazon’s current relevance compared to GE, I assure you nobody in Mass. is allowed to say a bad word about Amazon, unless Amazon wants them to as part of a pr strategy.
After GE, Mass. was criticized a lot in the news once their incentive package for GE was made public. They were accused of giving away tax dollars for GE, more than they’ll ever get back (the usual). So, in light of a Mass. dropping back to back HQ incentive bombs, with the upcoming one reaching nuclear proportions, I’m sure Massachusetts jumped at the chance to publicly sue Amazon. It’s an attempt to divert locals into thinking Massachusetts could remain independent while bidding for Amazon.