Shopping at Amazon is convenient. For some of us, it’s also a tax dodge

Amazon calls its warehouses “fulfillment centers,” a circumlocution that captures the rush many shoppers get when they use the service to make a purchase.

For Amazon customers who live in Missouri, the thrill of scoring deals with a click or a swipe comes with a bonus: no sales taxes collected at checkout.

Amazon is building new fulfillment centers at a rapid pace. But for now, none are located in Missouri. This matters. In 1992, the U.S. Supreme Court decided that businesses must have a physical presence in a state for that state to require the business to collect sales taxes.

The brick-and-mortar exception means that individuals who live in Missouri escape state and local sales taxes when they buy from Amazon. But what’s good for Amazon customers is bad for public coffers. A University of Missouri analysis determined that failure to capture taxes on online retail purchases cost $358 million in state and local sales tax revenue in 2014.

“We really owe those taxes,” says Traci Gleason, communications director at the Missouri Budget Project, a left-leaning policy group. “But the state doesn’t have a way to collect them.”

Technically, taxpayers are responsible for remitting taxes on online purchases. In Missouri, consumers must file a “use tax return” once they’ve made $2,000 in taxable purchases in a calendar year. But few people know about the requirement or, if they do, bother to comply.

The Missouri Budget Project says only 161 Missourians remitted use tax payments to the state in 2011. (More recent information was unavailable; a Missouri Department of Revenue spokeswoman says the state does not track the information.) 

Kansas, meanwhile, collects taxes on Amazon transactions in the same way it collects taxes on purchases made at business with storefronts. Amazon has a sorting center in Lenexa and recently opened a fulfillment center in Edgerton. (Amazon will open a fulfillment center in Kansas City, Kansas, next year. See the sidebar below.) The facilities constitute a “physical presence” in the state. As such, Amazon’s customers in Kansas are taxed at checkout as if they had stepped into a shop near the shipping address. 

Most states rely heavily on sales taxes. Years before Amazon offered Prime memberships (free shipping!), governors and state legislators began to worry about the revenue being lost when people shopped online.

In 1999, states came up with the Streamlined Sales Tax Agreement in an effort to make it easier for online retailers to collect and remit state and local taxes. Kansas is one of 24 states to have joined the agreement. The participating states receive tax collections from retailers that have volunteered to implement software from the Streamlined Sales Tax Governing Board.

Because the system is voluntary, streamlined states are receiving only a portion of the taxes owed on online sales. The Missouri Budget Project estimates that if Missouri joined the Streamlined Sales Tax Agreement, it could expect to capture between $15 million and $20 million in the first full year.

For the streamlined system to really work its magic, Congress needs to pass a law requiring online retailers to comply. U.S. Sen. Roy Blunt of Missouri has co-sponsored such legislation. In a news release, Blunt said the so-called Marketplace Fairness Act would level the playing field for small business “disadvantaged because they must collect sales tax while many online and catalog retailers do not.”

In 2013, the Senate passed an iteration of the Marketplace Fairness Act. But the House failed to act on a similar bill.

In addition to the argument that local merchants face a disadvantage, groups such as the Missouri Budget Project promote collecting taxes on online sales as a way for cash-starved states to pay for services. “From a political and policy perspective, it’s the easiest and best way to take a stab at solving some of these revenue challenges,” Gleason says. 

The tax avoidance associated with online shopping also contributes to inequality. Michael Mazerov, senior fellow at the Center on Budget and Policy Priorities in Washington, D.C., says online shopping exacerbates the regressive nature of sales taxes because people with lower incomes are less likely to have Amazon accounts.

“Low-income people might not have a credit card or they might not live in a neighborhood where they feel they can have packages left on their doorstep,” Mazerov tells The Pitch. “They pay the tax when they shop in stores, and upper-income people who don’t have those constraints get to save the tax by shopping online.”

With the inaction in Congress, some states are looking for creative solutions. In 2010, Colorado passed a law requiring Amazon and other online sellers to send a statement to their customers notifying them that taxes are due on the purchases they make. The Direct Marketing Association is challenging the constitutionality of the law, which was upheld by the U.S. Court of Appeals for the Tenth Circuit.

Mazerov says that if the decision stands, he expects other states to follow Colorado’s lead and pass similar legislation. 

“Being a streamlined state doesn’t get you the revenue,” he says. “Enacting the Colorado law may get you the revenue.”

FOR CITIES, SUPPLY CHAINS COME WITH STRINGS ATTACHED

A year from now, Amazon will open a new fulfillment center near the Turner Diagonal in Kansas City, Kansas. The 850,000-square-foot building will cost at least $250 million and create more than 1,000 full-time jobs.

Warehouse work does not pay as well as jobs at places like the Carrier plant that President-elect Donald Trump visited last week. Still, communities usually have to provide incentives to companies looking to expand their supply chains. A study by Site Selection Group, a Dallas-based real estate services firm, found that each distribution center job created in 2015 cost $12,000 in economic incentives from states and local governments.

To secure the Amazon facility, the Unified Government of Wyandotte County approved a 10-year, 100-percent tax abatement. Also, the Kansas Department of Transportation will pay most of the $8.5 million to build a new interchange off the Turner Diagonal. The full extent of the state’s participation is unknown. A spokeswoman for the Department of Commerce tells The Pitch that the numbers cannot be disclosed because the agreements have not been signed. 

A CVS distribution center of similar size is planned for a site near Kansas City International Airport. The precise shape of that deal is also a little fuzzy.

CVS will use the center to supply its stores in the Kansas City area. Last week, a proposal to build the 750,000-square-foot facility on 71 acres of undeveloped land off North Congress Avenue was approved by Kansas City, Missouri’s planning and zoning committee.

Port KC, formerly known as the Kansas City Port Authority, is the source of the incentives on the $110 million project. The Kansas City Star reported recently that CVS will receive a 22-year property-tax exemption on the land and the building, and a 10-year exemption on equipment.

Nicknamed Project Toto in the economic-development community, the CVS deal is another example of Port KC’s growing influence. 

A creature of state law, Port KC has ventured beyond its traditional redoubts — the riverfront, the former Richards-Gebaur Air Force Base — in its evolution into a more assertive “public interest developer.” It has approved incentives for projects where there’s not a barge or a runway in sight, including the former Board of Trade building, just south of the Country Club Plaza, and the 10-story Corrigan Building at 19th and Walnut streets.

Port KC’s deals have come under criticism. Its ability to operate with less oversight is one point of concern. Earlier this year, a Jackson County official complained about learning about Port KC’s deals from the press. It’s not a trivial complaint. The county and other jurisdictions are affected when eco-devo agencies cut developers a break on their property taxes.

In addition to abating taxes, Port KC can issue tax-exempt revenue bonds. In October, the Port KC board voted to authorize the sale of up to $123 million in bonds to pay for the CVS distribution center. Port KC would presumably own the facility and lease it back to CVS.

Port KC officials are not ready to discuss Project Toto. An agency spokeswoman said records pertaining to the deal were closed because the real-estate transaction has not been finalized. A reference to CVS was removed from the minutes of the October 17 board meeting after The Pitch asked for information about the deal.

In any case, the promise of new jobs tends to outweigh other considerations in such public-private partnerships. CVS says it plans to hire 350 to 360 people to work at the distribution center.

Addressing the planning and zoning committee last week, John Snyder, a Kansas City lawyer who represents CVS, suggested that his work had been easy.

“I won’t call it a love fest, but it’s been a very good relationship with everybody,” he said. 

— D.M.