Books With Borders

August 16, 2013

Students who rent textbooks through Amazon.com’s Warehouse Deals, Inc. may be unknowingly agreeing to an unusual condition: They are not permitted to cross state borders with their books.

According to the Textbook Rental Terms and Conditions page on Amazon.com, when renting through Warehouse Deals, which is an Amazon subsidiary, “You may not move the textbook out of the state to which it was originally shipped. If you wish to move the textbook out of that state, you must first purchase the textbook.”

If Amazon does determine that a renter has moved his or her book to a different state “at any time during the rental period,” the company at its “sole discretion” can charge the consumer the buyout price of the textbook.

Some experts believe the policy is another reflection of the extreme lengths to which the company continues to go in order to avoid collecting state sales taxes. But could Amazon’s use restriction and other complicated rental conditions cause problems for students or lead potential textbook renters to take their business elsewhere?

It seems like a policy that would be nearly impossible to enforce. But Richard Hershman, vice president of government relations at the National Association of College Stores, points out that if a student has textbooks sent to her home state and ships them back from a different state where she attends college, Amazon could easily note the new shipping location.

And a penalty could be costly. For example, a student who rents a sixth edition chemistry textbook by John E. McMurry and Robert Fray and has it shipped to Pennsylvania will pay $54.58 before shipping and handling fees. That book has a buyout price of $150.49. If Amazon discovers that the student violated the rental terms and conditions by moving the book out of Pennsylvania, the student could be charged the $96 difference. (These numbers are as of August 15. Online textbook prices are constantly fluctuating, especially directly before the fall semester begins, noted Hershman.)

Chris Lindstrom, the higher education program director at U.S. PIRG, the consumer rights group, said that the aim of any rental program should be to help lower the costs of textbooks, despite any other market concerns.

"If the program could potentially sweep the students up into higher costs, then it's problematic," Lindstrom said.

Warehouse Deals, started in 2004, offers “great deals on returned, warehouse-damaged, used, or refurbished products that are in good condition but do not meet Amazon.com rigorous standards as new,” according to its frequently asked questions page. The subsidiary is also a “marketplace seller” according to the website. Amazon has been offering printed rental textbooks through sellers such as Apex Media since last summer. But the company just began renting books through Warehouse Deals this summer, which is when this new policy went into effect, said an Amazon customer service representative.

Officials from both Chegg and Rafter -- two major online textbook companies for buying and renting -- said their respective companies do not have any policy that prevents students from bringing rental books from one state to another.

The “textbooks with borders” condition applies only to books rented through Warehouse Deals and not any other third-party sellers, according to Amazon.com. When asked why the condition was put into effect, multiple customer service representatives said they did not know. Amazon public relations representatives did not respond to repeated requests for comment.

At first glance, the restriction doesn’t seem to make much sense. But to those who have been following Amazon’s aggressive efforts to avoid charging state and local sales tax, the reasoning behind it becomes clearer. Kenneth C. (Casey) Green, founding director of the Campus Computing Project, theorizes that the restriction is a kind of “Mann Act” strategy (a law that made it illegal to transport women across state lines for "immoral" purposes) intended to minimize the company’s nexus -- or physical presence -- in states where the company is fighting the efforts of state and local authorities to collect sales tax.

“Presumably the concern is that if Amazon owns rented textbooks that cross state lines, state authorities could argue that Amazon has an official business presence in the state -- a business presence that would require Amazon to collect and to pay state sales taxes,” Green said in an e-mail.

Amazon’s attempt to minimize sales tax collection across the United States is nothing new. In a 1999 interview with the San Francisco Chronicle, Amazon CEO Jeff Bezos said, "E-commerce is still such a tiny fraction of commerce that taxing it at this point is unlikely to generate any substantial revenues for the government. Why mess with something that's going to generate very little revenues, which is a major underpinning of the economy, at this time? Why not wait three years and evaluate it then?"

More than a decade later, things have changed a bit. In a Fortune cover story this spring titled "Amazon's (not so secret) War on Taxes," it was reported that Amazon's ability to evade collecting state taxes gave it as much as a 10 percent pricing advantage over its rivals, costing states an estimated $11.4 billion a year. 

In 2011, the The Wall Street Journal reported that Amazon employees traveling around the U.S. have needed permission from managers before entering states where a worker’s presence might trigger laws that force Amazon to collect taxes in those states. In June, Amazon severed ties with its Minnesota-based affiliate websites “that receive a fee for referring shoppers to the retail giant's online store.” Amazon told its affiliates in an e-mail that the move was a direct result of legislation signed into law by Minnesota state Gov. Mark Dayton that requires certain online businesses with a physical presence in the state to charge sales tax. The Amazon e-mail called the law "unconstitutional."

Amazon has said that it only is opposed to collecting online sales tax on a state-by-state basis. The company is in support of the Marketplace Fairness Act, which is the federal legislation requiring the collection of sales taxes on online purchases. The legislation was passed in the Senate in May and is now awaiting action in the House.

As the bill comes closer to becoming a reality, Amazon has started reaching agreements state-by-state to start collecting taxes from its customers. Amazon currently collects sales tax in Arizona, California, Kansas, Kentucky, New Jersey, New York, North Dakota, Pennsylvania, Texas and Washington, with more states to come. At the same time, the company has established warehouses in locations throughout the country. Even if the company loses its longtime competitive edge of customers not having to pay sales tax, the warehouses will allow Amazon to offer quicker, better service, Bezos told The New York Times.

Hershman, of the National Association of College Stores, said his association also supports the Marketplace Fairness Act.

“Many of these tax rules are extremely complicated and make no sense in the context of modern textbook rental programs,” he said.

Ideally, he said, all states should remove sales and use taxes on college textbooks, as many already do.

“It makes no sense for state and local governments to tax learning and contribute to increased college costs that they claim at the same time they want schools to reduce,” he said.

Many students, however, who do live in states where college textbooks are exempt from taxes, do not know that they are able to ask for an exemption. Amazon’s help page lists the 10 states where students can request a tax refund on textbooks.

Besides not being able to take some books with them out of state, students can face other frustrations when renting textbooks through Amazon. Warehouse Deals is able to sell books at very low rates, but the seller only ship to certain states. Amazon’s website explains that “when you order textbook rentals on Amazon.com, you're ordering from one of multiple sellers that offer rentals through Amazon.com. Some sellers do not rent books in all states.”

So renting a book in one state can cost sometimes twice as much as renting it in another state. For example, if a student goes on Amazon and attempts to rent Principles of Anatomy and Physiology by Gerard J. Tortora, he will be asked where the book is being shipped. As of August 15, the book can be rented from Warehouse Deals for $42.79 in only 16 states. Five of those states do not have sales or use taxes, and the other 11 are states where Amazon has already established a nexus. If you want the book shipped to the 34 other states, you would have to rent the book from Apex Media for $79.75.

The bottom line is that students should read the fine print and understand all of the terms and conditions before renting a book from any seller, Hershman said.

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