As Randall Stross described in the New York Times yesterday, Amazon.com has a long and ignoble history of refusing to collect sales taxes on the things it sells. Originally the company argued that it was only obligated to collect taxes in states where it had a physical presence, like Washington. The advantage to Amazon is obvious: If I walk up Connecticut Avenue to Kramerbooks and buy a copy of “The Girl Who Played With Fire” for $25.95, I have to pay 5.75% sales tax, or $1.49.  If I order the same book from Amazon from my office computer, I don’t. So Amazon gets a significant price advantage over its terrestrial competitors, which is crucial when you’re competing to sell exactly the same low-margin product. This makes zero sense from a policy standpoint–I’m in DC in both cases, so in both cases I should owe DC sales tax.

As time went on and Amazon became more successful, it started to open up facilities in more states. This should have meant collecting more sales taxes. Instead, Amazon figured out a way to avoid this by paying lawyers and accountants to gin up a bunch of wholly-owned shell corporations. For example, you may be under the impression that Amazon manufactures and sells a device called the “Kindle.” Not true! The Kindle is actually made by a company called Lab126, located in Cupertino, California. Lab126 is owned by Amazon. But because it isn’t legally Amazon itself, Amazon doesn’t collect sales taxes in California. CBPP’s Michael Mazerov, the world’s expert on such matters, calls this “entity isolation.”

How much is this costing the taxpayers? According to the Times, Amazon had $21.7 billion in revenue in the four quarters ending September 30, 2010. Let’s be super-conservative and say only $10 billion of that was revenue that should have been subject to sales tax, but wasn’t.  Assuming an average state sales tax rate of 5 percent, that’s $500 million in lost tax revenue. States spend about 32 percent of their money on education, leaving us with $160 million in lost funding for schools and universities. Since the states are flat broke right now, pretty much all of that translates into additional layoffs and skyrocketing college tuition.

In other words, there are thousands upon thousands of unemployed teachers and financially strapped students in America, today, because Amazon CEO Jeff Bezos, number 28 on the Forbes 400 with a net worth of nearly $9 billion, refuses to perform a basic obligation of running a decent business.  It’s a strange world we live in when this kind of behavior results in little or no moral condemnation.