Malloy announces deal for Amazon to collect sales tax

Hartford — Amazon will invest $50 million over two years to create a "customer fulfillment center" and 300 jobs in Connecticut, said Gov. Dannel P. Malloy on Monday. Amazon has also agreed to collect a sales tax for Connecticut now that it will have a physical presence in the state.

Amazon estimated it would collect $15 million in sales taxes annually once it starts collecting on Nov. 1, Malloy said.

"It's clear that it (Connecticut) is not a terrible state to do business in," Malloy said. "As I said, this is the third very large-scale customer fulfillment center to be announced in a relatively short period of time here in the state of Connecticut."

Amazon, which is looking for a location for the center, will start collecting sales tax just in time for the online holiday shopping season. The company will also push for federal legislation as it ends up collecting a sales tax for more states, which raises the price of online items.

Editor's note: This sentence corrects an earlier version. Malloy said he has already applied the projected revenue to his budget proposal, which he will roll out on Wednesday. In response to questions about whether there would be state assistance Malloy said there are no strings attached. If Amazon were to plan significant expansions, "we would have discussions," he said.

A professor at the University of Connecticut School of Law in Hartford, Richard D. Pomp, said, "It's a big deal for the dishonest taxpayers in Connecticut because we have always owed the sales tax on goods purchased from Amazon."

Under current law, out-of-state retailers are not required to collect a sales tax for Connecticut. It is up to consumers to report their out-of-state purchases when they file their taxes.

This move by Amazon takes the responsibility of paying the sales or use tax away from the consumer, Malloy said.

"I think there are probably fewer people that are worried about the sales tax," Pomp said. "People today shop for the convenience."

The new business model for Amazon has to do with buying something today and getting it tomorrow, he said. Having more customer fulfillment centers or warehouses allows Amazon to compete against supermarkets and local stores, Pomp said.

Pomp also said he thought Amazon would become a champion for a federal law on sales tax collection now that it will be collecting sales tax while other online retailers without a physical presence are not.

The sales tax law passed in 2011 required out-of-state online retailers who sell more than $2,000 worth of goods a year through affiliate companies located in Connecticut to collect a sales tax. Affiliate companies, for example, would be companies that direct web users to Amazon's website and receive a commission once a web user purchases something from Amazon.

When the law passed Amazon and other companies broke ties with affiliates in order to not collect the tax.

Now that they have agreed to collect a sales tax, "they are willing to do business with affiliates in the state of Connecticut again," Malloy said.

In an email, the vice president of global public policy for Amazon, Paul Misener, said the company "look(s) forward to working with Gov. Malloy toward passage of the legislation now being considered by Congress that would finally resolve the sales tax issue, level the playing field for all retailers, protect states' rights and allow states to collect the revenue owed."

The problem is that it is not politically attractive to enforce sales tax collection at the federal level, Pomp said. Politicians will appear to be taking away people's rights to buy items online sales tax-free, even though online purchases were never meant to be sales tax-free, he said. Congress would take a lot of heat to pass federal legislations and then the revenues from the sales tax would go to states, Pomp said.

Nationally about $11.3 billion in use tax revenues are lost from electronic business-to-business and business-to-customer transactions, according to the National Conference of State Legislatures. In Connecticut about $63 million is lost.

Amazon has agreed to collect sales tax on items shipped to Arizona, California, Kansas, Kentucky, New York, North Dakota, Pennsylvania, Texas and Washington, according to its website. Amazon recently agreed to collect a sales tax on items shipped to Massachusetts, Malloy said.

Malloy said he expects brick and mortar retailers to push again for out-of-state retailers to collect a sales tax.

"I think pressure that traditional retailers are under is rising and it's starting to be seen as an issue of fairness," he said.

j.somers@theday.com

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