Tax attorneys for Amazon.com must be working overtime these days…
This week, Amazon.com learned that it faced another affiliate challenge: in Japan. This time, however, rather than its affiliate sales program, the focus is on corporate affiliates for Amazon.com. The two affiliates in question are Amazon Japan and Amazon Japan Logistics, which, exactly as they sound like they would be, are responsible for sales and operations inside Japan.
The Tokyo Regional Taxation Bureau claims that Amazon.com’s US companies have been improperly booking sales income in the US for Japanese sales in order to avoid taxes in Japan. The Bureau has put Amazon on notice that it intends to try and collect back taxes of $119 million as a result of what it perceives as underreporting inside Japan.
Here’s the confusion: US companies that do business in Japan but don’t have a physical presence/branch office inside the country are not required to file Japanese tax returns. Amazon.com claims this is the case. But the tax bureau has determined that Amazon Japan and Amazon Japan Logistics have been acting as branch offices. As a result, Japan is seeking back taxes from the company through December 2005.
Amazon and its affiliates are currently in talks with the authorities: in other words, expect a settlement.
Taxpayer asks:
Dear taxgirl,
I am confused. I saw your post about amazon.com and sales tax in New York. I live in New York. Do I have to collect sales tax now for amazon? What about my other affiliate sites? Help! I think I am doing something wrong.
Taxgirl says:
The post that you’re referring to is here.
It is confusing – but that’s because the position that New York is taking is pretty groundbreaking. Basically, New York claims that any affiliates living in the state of New York are the equivalent of virtual “door to door” salespeople and thus, the parent company is subject to sales tax.
The good news is that you don’t have to do anything. If you are located in New York (and any other state that takes a similar position), this makes the parent company (Amazon.com, for example) responsible for collecting the sales tax. You will not be responsible for collecting sales tax on purchases made through an affiliate site.
The bad news is that some companies, like Overstock.com, have decided that makes the affiliate programs more trouble than they’re worth and have pulled the programs where they might be subject to tax.
I’m not sure what will come of the lawsuits filed by Amazon.com, Overstock.com and the like. One thing, however, is certain: access to the internet is changing our world. The very fact that I can order a tree from Oklahoma with the click of a mouse (I did this recently) changes the economic picture. This will certainly affect our tax structure.
My advice? Read all of those emails and flyers that you get in the mail (or email) from parent sites. They may contain important tax information or other changes in the way that your parent company conducts business with you as an affiliate. And if you have any questions about your reporting or other requirements, make sure to consult with your tax professional.
It’s a confusing time for a lot of folks – we’ll just have to wait and see what happens in New York!
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl!
