Why does Amazon have to estimate sales tax?
November 10, 2016 6:18 AM Subscribe
I live in Chicago. When I buy something from Amazon (as in "ships from and sold by Amazon.com"), the checkout process and confirmation email show me an estimated sales tax of 10.25% (the sales tax rate for the state + county + city). The final tax actually charged, however, is the correct state-only tax of 6.25%. My question is why Amazon ever has to estimate.
Surely there is no human reviewing orders after they're placed to determine the correct tax, so why can't the ordering system make the calculation at point of sale? It would seem to be to their advantage to show an accurate lower total, instead of potentially turning off sales with a higher estimate.
Other online retailers do this too, but I'm focusing on Amazon because they're such a behemoth that if even they have to estimate, there must be some reason for it.
Surely there is no human reviewing orders after they're placed to determine the correct tax, so why can't the ordering system make the calculation at point of sale? It would seem to be to their advantage to show an accurate lower total, instead of potentially turning off sales with a higher estimate.
Other online retailers do this too, but I'm focusing on Amazon because they're such a behemoth that if even they have to estimate, there must be some reason for it.
What JPD said. Basically, "it's complicated." This is a good overview of the tax situation for e-commerce.
posted by rachelpapers at 7:16 AM on November 10, 2016
posted by rachelpapers at 7:16 AM on November 10, 2016
Why don't you pay the city and county taxes, if you live there?
But yeah, as even my question suggests, it's complicated -- too complicated for the customer-facing systems to handle. Especially for Amazon, who sell things in all kinds of tax categories. Amazon probably plays it safe with their estimates so they don't end up charging a customer more than promised.
Also worth noting is that for many, many years Amazon didn't charge anyone sales tax. I imagine their systems have this assumption baked in at multiple levels.
(source: used to do webdev for one of Amazon's competitors. Pricing is one of those things that's way more complex than it sounds at first.)
posted by neckro23 at 9:14 AM on November 10, 2016
But yeah, as even my question suggests, it's complicated -- too complicated for the customer-facing systems to handle. Especially for Amazon, who sell things in all kinds of tax categories. Amazon probably plays it safe with their estimates so they don't end up charging a customer more than promised.
Also worth noting is that for many, many years Amazon didn't charge anyone sales tax. I imagine their systems have this assumption baked in at multiple levels.
(source: used to do webdev for one of Amazon's competitors. Pricing is one of those things that's way more complex than it sounds at first.)
posted by neckro23 at 9:14 AM on November 10, 2016
Best answer: This is because Amazon has shipping facilities in Illinois. If the product ships from out of state, they charge only the state use rate. If the product ships from inside the state, they are also liable for collecting the county and city rate. You still owe the county and city tax on your annual income tax return, though nobody ever does.
Source: work in sales tax, a significant portion on various e-commerce projects.
posted by politikitty at 9:36 AM on November 10, 2016 [3 favorites]
Source: work in sales tax, a significant portion on various e-commerce projects.
posted by politikitty at 9:36 AM on November 10, 2016 [3 favorites]
« Older What practical things do I need to be concerned... | Australians and New Zealanders, what do your kids... Newer »
This thread is closed to new comments.
Better to aim high and then surprise people with a smaller number .
posted by JPD at 6:27 AM on November 10, 2016 [6 favorites]