What Amazon's Sales Tax Deal in Massachusetts Means for Shoppers, Retailer


It's going to cost the 6.6 million residents of Massachusetts a little more to shop on Amazon.com (AMZN) next holiday season.

The leading online retailer and the Massachusetts Office for Administration and Finance have reached an accord for Amazon to begin collecting the 6.25 state sales tax on any purchases by Massachusetts residents starting next November -- and forwarding those funds to the state Department of Revenue, of course.

Massachusetts will be the ninth state in the country to ink a state sales tax collection deal with Amazon -- an agreement that makes each purchase on the site that much more expensive, and makes Amazon that much less superior on price.

A Taxing Dilemma

Recession-starved states are hungry for tax revenue, and going after online retailers is a relatively new approach. Residents may not like the idea of paying more for their online purchases, but local merchants will naturally appreciate moves that help level the playing field a bit.

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Consumers who skirt state sales taxes on e-commerce purchases are still supposed to offer them up later as "use" tax, but few taxpayers know about that or go through with the calculations. It's a lot easier to go after e-retailers, but states typically have to wait until the company has a physical presence in their state.

Massachusetts got that break when Amazon acquired North Reading-based Kiva Systems last year. In the past, some states have stretched their authority by suggesting that Amazon Associates -- a program under which individual webmasters and bloggers can earn commissions by promoting Amazon.com merchandise -- requires Amazon to collect state taxes.

Sometimes Amazon has caved, the way it did in New York. Other times it has fought back by revoking Amazon Associates eligibility for residents of that state.

A Nation Divided

Amazon is now either collecting state sales tax or expected to start tacking it on soon for orders originating in New York, California, New Jersey, Virgina, Nevada, South Carolina, Tennessee, Indiana, and Massachusetts.

Amazon has established a presence in those states by opening fulfillment warehouses, making acquisitions, or agreeing to keep Amazon Associates.

The clock may be ticking on the rest of the country. States are likely to get even more strapped for cash if federal austerity measures kick in next year, and going after Amazon's sales taxes may seem like low-lying fruit. The move would set the stage for potentially going after smaller Web-based retailers.For now, though, Amazon's pricing advantage is narrowing.

So don't be surprised to see Massachusetts residents starting their holiday shopping in October next year, choosing buzzer beaters over door busters to ensure that they save some money when they click "proceed to checkout."

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Motley Fool contributor Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services recommend Amazon.com.

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Originally published