Notebook

September 17, 2012 7:44 pm

Keep your cool and pay the tax

Amazon customers in California can hardly disapprove of millionaires who exploit loopholes, writes Matthew Garrahan

Each summer in Los Angeles the stuffy, non air-conditioned home office that I work in turns into a furnace and every year I vow to do something about it. But I never have: partly out of laziness and partly because the discomfort that comes with sitting in an airless room, doors barred to stop my young children bursting in, only lasts for a few weeks until the weather gets cooler.

Not this summer. A blisteringly hot August segued neatly into an even hotter September. Brush fires are raging in Los Angeles: one, on September 14 by the Getty Museum forced the temporary closure of the 405 freeway, paralysing the west side of the city. The heat shows no sign of abating, which means more are likely.

Last week as I sat in the sweltering office, my three-year-old daughter knocking repetitively at the door outside with a plastic spade, I decided enough was enough. I logged on to Amazon.com and ordered a cheap, water-based air cooler unit. It arrived two days later and after loading it with ice and water I positioned it to shoot a faint stream of cool air towards my desk.

But rather than rejoice at my new, slightly less stifling working environment, the arrival of the cooler has instead prompted some soul-searching about my attitude to tax – specifically, whether I am in any position to disapprove of tax avoidance by others.

Let me explain. Like many people, I am not averse to the occasional tut or disapproving shake of the head when hearing of the measures taken by the very wealthy to avoid paying tax. Whether it is private equity titans who pay a lower rate than their cleaners or Mitt Romney’s recent admission that over the past decade he “never paid less” than 13 per cent tax (the rest of us working stiffs would be grateful to pay less than 20 per cent, thank you very much) my self-righteousness knows no bounds.

Banx illustration

Yet while I have sat in judgment of others on this issue I have turned a blind eye closer to home. For the past several years my wife and I have ordered numerous products on Amazon, buying everything from toothpaste and nappies to last week’s air cooler. Like the online retailer’s other California-based customers, we do not have to pay the state’s sales tax of about 8 per cent, which is mandatory for purchases from bricks-and-mortar retailers.

Amazon’s argument over the years has been that it should be exempt from California sales tax because it does not have a physical presence in the state. This did not prevent it attracting the ire of its competitors, who claimed it enjoyed an unfair advantage. It certainly did. My wife and I calculated that we must have saved hundreds of dollars buying nappies in bulk for our twins from Amazon rather than from the local supermarket.

California’s fiscal struggles mean it is in desperate need of new revenue so the state’s politicians have had Amazon in their sights. The pressure clearly took its toll and although it took a mere 17 years to relent, Amazon this weekend began charging sales tax to its customers in California. It also pledged to open two new distribution centres in the state. Tax authorities estimate Amazon’s move could generate more than $100m a year – funds that are badly needed, given the state’s multibillion-dollar deficit.

With the deadline looming last week, west-coast newspapers reported a rush by online shoppers in California to beat the imposition of the sales tax. I can confirm that I was not among those bulk-buying washing powder or toilet paper but I did experience a twinge of guilt that I had not paid sales tax sooner. I could have done: Californians are required to add sales tax to their online purchases when calculating their tax returns, but the state estimates that less than half of 1 per cent of all eligible taxpayers actually do this.

Sales taxes vary state to state. Some don’t have them at all, while for some patriotic Americans – namely members of the Tea Party – paying less tax is practically a civic duty. But I can hardly voice my disapproval at millionaires who exploit loopholes to avoid paying tax when I have essentially done the same thing. Or can I? Is there a moral equivalence between moving money offshore to avoid income tax and buying air coolers and nappies directly from Amazon to save on California sales tax?

I conclude there probably is, so it is time for me to get down from my high horse. Or at the very least rein it in.

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