Independent retailers used to hope that the playing field would be leveled when behemoth online retailers like Amazon were forced to pay sales tax.  Now that it is actually happening though, some retailers believe it might be too little too late.  Retail analysts claim that Congress waited too long to pass the sales tax law, and that now companies like Amazon have become so large that a tax advantage is no longer essential to their growth strategies.  Amazon now relies less on price, but more on speedy delivery, free shipping, and an increasingly broad selection.  As Amazon continues to build warehouses and distribution facilities, it is extending its already considerable reach.  Amazon reported in April that its first-quarter revenues rose 22% to $16 billion.  Comparatively, Walmart is expecting no sales growth during the first quarter.

Jeff Bezos, founder of Amazon, initially attempted to build the company on a tax-free Indian reservation.  When that idea failed, he decided to move to the State of Washington where there were plenty of software programmers and a relatively small population.  Amazon has rejected the notion that it should collect money in states where it had no employees.  Currently, consumers are supposed to add up their Internet purchases and pay the appropriate taxes directly to the state revenue collector; but enforcement is minimal and very few customers do that.  Since the recession, struggling state economies have been pushing the tax issue as a revenue generator.

Determining the taxes in thousands of jurisdictions can be a nightmare for Amazon merchants above the new legislation’s $1 million threshold.  This becomes even another opportunity for Amazon as it can sell tax collection services to tens of thousands of third parties.

Analysts also suggest that collecting taxes will not drive away Amazon’s customers.  In the states where Amazon has already begun collecting taxes, sales dipped for about a year and then customers returned to Amazon for the selection and convenience.  In August of 2012, Amazon executives testified before Congress that “all sellers should compete on a level playing field.” Amazon wrote letters to Senators thanking them for the new legislation.  However, independent retailers agree that while Amazon may now be fine with the new tax bill, they certainly didn’t suffer from 10 years without it.

Discussion Question:

From Amazon’s perspective, what are the advantages and disadvantages of requiring online retailers to collect sales tax?

 

SOURCE: David Streitfeld, New York Times, April 26, 2013