Amazon Charges NJ Sales 10.5%?

By Richard Menta 11/2/13

Recently, Amazon started to charge sales tax to NJ residents, a byproduct of warehouses the company is building in the state. The warehouses establish nexus in the state, which by a US Supreme Court ruling means Amazon must now collect sales tax from its NJ shoppers.

Sales tax in NJ is 7% except in areas designated as an economic revitalization zone where the tax is 3.5%. I knew the taxes were coming, no surprises here.

But something was not right when I attempted to buy a book for my daughter. Just as I was about to finalize the order I noticed the charges were way off. The book cost $8.09. The tax I was to be levied was $0.85. That's a 10.5% tax rate! Why am I being charged 10.5%? The order confirmation I received by email from Amazon confirmed the $0.85 charge.

It turns out that Amazon is also charging me tax on the cost of shipping and handling. That's a problem, because New Jersey does not tax shipping and handling as I confirmed on the state's web site:

Are shipping and handling subject to sales tax?
Effective October 1, 2005, the law provides for a new definition of "delivery charges." For transactions occurring on or after October 1, 2005, handling charges are included within the definition of delivery charges, and are therefore exempt from tax whether or not they are separately stated to the purchaser.

I then checked a purchase I made from Amazon on October 7th of this year. Guess what? I was taxed on the $13.50 shipping and handling charge for that order, which I didn't catch it at the time. It looks like I am not the only one who missed it as I could find no other complaints on the web. Part of the reason this may have gone undetected for so long is that Amazon offers free shipping for orders over $25 (just recently raised to $35).

Now it is very possible - probable most likely - that this is nothing more than a coding error on Amazon's site. But it's a whopper! Just consider the hundreds-of-millions of dollars in sales Amazon makes in New Jersey each year. These extra dimes add up very quickly. At minimum, it has been going on throughout the month of October. Most likely it has been that way since July 1st when the company started to tax Jersey residents. Since the state only expects Amazon to remit tax on the cost of the item, come audit time Amazon's accountants will have a lot of extra paperwork to do.

I am very disappointed in Amazon for not picking this up right away. So much so that I did the absolute worst thing I could do to a company I have been very satisfied with for well over a decade. I canceled my order for what, literally, came down to two dimes, three pennies, and a nickle.

Naturally, I will hold off from buying from them again until this matter is corrected, which I hope will happen before I begin my Christmas shopping. This includes identifying how long the company has charged NJ residents tax on shipping and handling and reimbursing their customers, including me, for any overcharges.

I will contact Amazon today for a response and will post it here.

Followup 10/3/2013: Uggghhh...when you go to a FAQ (in other words guidance for the layman as opposed to a resource for a professional) on the state web site to research a question about sales tax in NJ and you get an answer that says the state doesn't charge for shipping and handling you don't automatically assume you need to scroll further down to see if said law was repealed. I should have anyway as it was pointed out to me that if I just scrolled a little bit further beneath the break I would have caught that the law was indeed repealed a year later and S&H is charged on some items in New Jersey. The error here is mine.

Amazon is not at fault. The 10.5% tax in this instance is correct - and that's too much.

Unfortunately, this creates a a different issue that can only be changed by the state legislature. Unless you get free shipping from Amazon it rarely makes sense for New Jersey residents to buy from them. For those politicians who support brick and morter stores that is only music to their ears.

Here is the section that repealed the 2005 law:

As of October 1, 2006, the exemption for delivery charges imposed by the seller is repealed for taxable goods and services. For deliveries on and after October 1, 2006, if a shipment includes both taxable and exempt property, the seller should allocate the delivery charge based on either the total sales price or the total weight, and collect tax on the portion of the delivery charge allocated to the taxable goods. In such mixed transactions, if the seller does not allocate the delivery charge, the entire delivery charge is taxable.



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