2012 Marks Final Sales-Tax-Free Holiday Season for Amazon Shoppers in New Jersey

Shoppers in New Jersey who frequent the popular internet site, Amazon.com, will have one last holiday season to purchase the site’s myriad items without paying sales tax on their purchases. That’s because, with a deal struck earlier this year between the state and the online retail giant, Amazon will begin collecting New Jersey’s 7% sales tax as of July 2013.

Large online retailers like Amazon long resisted collecting the tax, enjoying the competitive advantage it held over brick-and-mortar stores. The rule governing the collection sales taxes on online purchases derives from a 1992 U.S. Supreme Court decision, Quill Corp. v. North Dakota. In that case, the court determined that a mail-order retailer must collect sales tax only on customers in states where the retailer holds a “physical presence.” Having a warehouse, store, office or even sales representative is enough to satisfy the requirement. The holding in Quill was later extended to online sellers.

The lost tax revenue from online sales was significant. A study by Rutgers University’s Bloustein School of Planning and Public Policy found that the state lost $171 million in sales tax revenue in 2009 from online purchases, and estimated that number could swell to $310 million by 2015, the Star-Ledger reported.

Gradually states began pursuing these taxes. In 2008, New York amended its laws to include out-of-state sellers with New York-based affiliates. This so-called “Amazon Law” places online retailers on the hook for collecting sales taxes, even without a physical presence, if they have agreement with in-state residents to pay commissions for referrals of potential customers. Amazon and fellow internet retail giant Overstock.com sued, and that action remains ongoing.

New Jersey took a different approach. Earlier this year, the state and Amazon struck a deal in which the retailer agreed to build two new distribution centers, and create 1,500 jobs in the state, while the state agreed to allow Amazon to hold off collecting sales taxes until July 1, 2013. New Jersey has a compensating “use tax” intended to make up for lost sales taxes. The use tax kicks in when “taxable goods and services are purchased and New Jersey sales tax is either not collected or is collected at a rate less than New Jersey’s sales tax rate,” according to the Division of Taxation. However, compliance with, and enforcement of, the use tax historically has been low. A University of Tennessee study reported that an estimated $413 million in use taxes will go uncollected in New Jersey in 2012. The study revealed that, in 2009, New Jersey taxpayer reported roughly $2 million in use taxes, with an average use tax per return of $142. Only 0.3% of all income tax returns reported any use tax.

The tax attorneys at Samuel C. Berger, P.C. and the CPAs at S.C. Berger, P.C. can help people throughout New York and northern New Jersey with all manner of tax issues, including the reporting and payment of sales and use taxes. To consult our attorneys and CPAs, contact us online or call (201) 587-1500 or (212) 380-8117.

More Blog Posts:

Three Issues to Consider When Buying a New York or New Jersey Business, New York & New Jersey Business Lawyer Blog, Sept. 14, 2012
National Tax Services Company Found Liable for Fraud, New York & New Jersey Business Lawyer Blog, April 19, 2012
Proposed Reduction in Corporate Tax Rate May Not Benefit Many New York Small Businesses, New York & New Jersey Business Lawyer Blog, March 1, 2012