Last Thursday, it was announced that massive online retailer Amazon will start collecting next month a 6 percent Idaho sales tax on purchases shipped to Idaho.
The Idaho Amazon deal is part of a national effort by states to collect sales taxes from online merchants. Utah announced a similar deal with Amazon in December of 2016 and most other states have similar arrangements.
Sales taxes are a critically important source of Idaho state funding. According to the Idaho State Tax Commission, Idaho sales taxes generated a bit more than $1.5 billion in revenue in FY 2016, nearly 40 percent of all state tax revenue.
Here are three reasons why this deal is momentous.
First, it will measurably boost Idaho state tax revenues. Betsey Russell of The Spokesman-Review quoted Idaho House Majority Leader Mike Moyle last week as estimating this deal will generate an additional $15 million to $20 million for Idaho’s coffers each year.
That number will grow. Amazon in 2016 generated gross revenues $136 billion with about 80 percent from online sales. Its revenues are growing at a blistering annual pace of 20 percent-plus. The Idaho Amazon sales tax number should climb significantly over the next few years.
Second, this deal will boost the competitiveness of on-the-ground Idaho retail businesses in Idaho communities big and small.
Gov. Butch Otter’s office released the following statement to Boise television station KTVB and it focused on this point:
“We consider this to be a matter of fairness. As an industry leader and one of the world’s largest retailers, Amazon’s decision will provide more tax revenue to help pay for the essential operations of state government. But just as importantly, it will help Idaho taxpayers comply with state law while creating a more level playing field for Idaho’s brick-and-mortar retailers.”
Local sellers of products all over the U.S. and here in Idaho are feeling competitive pressure from online sellers. A key disadvantage for local sellers is price, driven at least in part by having to collect sales taxes when their online competitors often don’t. This agreement will relieve some of that pressure.
Third, the Amazon deal may lead to other Idaho agreements with still more online sellers, further boosting state tax revenues.
The National Conference of State Legislatures in 2012 estimated that Idaho lost $103 million in sales tax revenue each year in connection with online sales. Given the rapid growth in online purchases, the Idaho number today is likely considerably larger.
With the Amazon deal struck I expect Idaho to now turn its focus to other popular online retailers like Ebay, Overstock, etc. and demand similar Amazon-like deals.
Many online retailers will decline, citing a previous U.S. Supreme Court decision saying a state could only force sales tax collection on businesses that have a physical presence in that state. But, Oklahoma has passed a law that flies in the face of that limitation. A lawsuit has been filed challenging the measure and many expect it will end up before the U.S. Supreme Court. If overturned, Idaho would gain the ability outright to collect sales taxes from online sellers.
Legislation is also being pushed in Congress to allow states nationally to collect online sales taxes and the National Governors Association is working at the state level to create an alternative system to accomplish much the same. Both efforts build pressure on online retailers to strike deals with states like Idaho.
I predict the Amazon deal is likely only the harbinger for Idaho in this area.