How States' "Amazon" Tax Policy Impacts Indian Country Taxation

In a battle over sales tax collection between and California that could have had implications for Indian Country taxation, the online retailer backed down last month. Amazon cut a similar deal with Tennessee on Thursday.  For years, Amazon has refused to collect sales taxes in states where it claims it is not physically present. Amazon’s argument will have familiar elements for those of us in the tribal tax world.

In fact, the undergirding of Amazon’s argument is the 1992 Supreme Court decision Quill Corporation v. North Dakota, in which the Court held that states cannot require vendors to collect sales taxes if they do not have a physical presence in the state.

The case was recently relied upon in Red Earth LLC v. United States by the Second Circuit in striking down part of the PACT Act.

As predicted early and often here, states today (like all governments) are tax starved and leaving no stone unturned in their quest for novel revenue sources.

Amazon, like Tribal entrepreneurs, with billions of alleged uncollected sales taxes nationwide, stood right in states’ path.  For years, Amazon collected taxes in a few states, like Washington, where it’s based. Other states like California argued that Amazon was physically in those states through the presence of facilities and affiliates. Obviously, Amazon disagreed.  The case was headed for high places, and, if the Supreme Court got a hold of it, we could certainly have found ourselves with new rules about sales tax, due process, and taxing nexus.

Then, last month Amazon backed down and agreed that, in a year, it will start collecting sales tax in California.  The year grace period may give the company time to lobby for a federal fix. In the meantime, it has started the dominos elsewhere, including Tennessee’s deal with Amazon on Thursday. Tennesee’s deal starts in 2014.

States aren’t giving away revenue they believe they are entitled to for free.  Amazon has promised to add thousands of jobs and invest several hundred million dollars in the states with whom it has deals.  And for its part, Amazon is presumably spending less on jobs and investment than it would be on collecting sales taxes in California, for instance, in the near term.  The company is probably waiting to see whether federal legislation introduced by Senator Durbin (D-Ill.) will create a uniform national internet retail tax (state taxes, supported by big business, enforced by federal government – sound familiar?)

What’s should be most disturbing to Tribes is states’ willingness to forego tax collection in exchange for capital investment, jobs, and general economic development. When Tribes offer the same, and simply expect to be treated as a government, rather than a corporate entity, states often balk.  The argument for predictable Tribal-state (or -local) taxing agreements is at least as compelling as the case for Amazon’s deal with a growing number of states.

In addition, furthering the double standard of Indian Country taxation, Amazon has made it easy for many customers to not pay sales tax – even though sales tax is probably due – tribal members in Washington Indian Country have to go through a comparably intricate process to avoid paying taxes that are not due.

Anthony Broadman is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm.  His practice focuses on company-critical business litigation and representing tribal governments. He can be reached at 206.691.3631 or, or or via