Amazon Sales Take a Hit in States With Online Tax

http://www.bloomberg.com/news/2014-04-22/amazon-sales-take-a-hit-in-states-with-online-tax.html

by IBM • 12 years ago

82 80 12 years ago

The push to tax Amazon is so online and brick-and-mortars are treated equally in a tax sense. Yet the states that have enacted taxes on Amazon, do not collect taxes unanimously from all businesses selling online within their borders. It seems to me that states need to find a new method to treat all online sales equally as well, and not separate Amazon into its own tax bracket. Is each company that faces a legislature going to have to fight for its tax rate separately and work their won deals? This is ambiguous to buyers and hurts smaller businesses that don't have the legal funds or ability to negotiate.

bbq3• 12 years ago

The problem is taxes are incredibly complicated. There are companies that do "tax as a service"[1].

Governments should pass tax laws in some sort of industry standard tax rules specification[2]. This way, companies and the open source world can write rules engines to process taxes and online stores can pick among the competitors, not having to worry about the complexities themselves. Costs are reduced, competition increased, and consumers win.

[1] http://www.avalara.com/

[2] this might also make taxes simpler. If legislators can't encode (compile) it, they can't legislate it!

dangrossman2• 12 years ago

That's basically the Marketplace Fairness Act, which is the most likely "internet sales tax" bill to pass in the near future.

http://www.marketplacefairness.org/

It requires each state that wants to collect from foreign sellers to provide a uniform state-wide sales tax policy, a single organization in each state to handle registrations/filings/audits, and free tax compliance software. It also builds a mechanism to certify companies (like Avalara) to take care of internet sales tax for you, and relieves businesses of liability for mistakes if they use one of these companies to compute/file their taxes.

brc• 12 years ago

If it were up to me I'd just can the sales tax on the brick and mortar stores as well. There is always some spending you can cut somewhere.

jasomill• 12 years ago

"Some spending" is a bit of an understatement — sales taxes represent the single largest revenue source for state governments other than "transfers from the federal government"[1].

[1] http://factfinder2.census.gov/faces/tableservices/jsf/pages/...

venomsnake• 12 years ago

It seems to me that states need to find a new method to treat all online sales equally as well, and not separate Amazon into its own tax bracket

VAT works fine once you have the infrastructure in place.

mrcharles2• 12 years ago

Honestly, Amazon has a lot to offer even beyond "No Tax". And I say this as a Canadian who has had to pay taxes and duties on amazon orders since day 1.

People may gripe about it for a bit... but amazon is still the best way to shop, and also has the best selection and prices.

justinsb6• 12 years ago

I agree that Amazon is often the most convenient option. But their prices simply aren't the best any more (at least for things other than books). Try a price comparison next time and see if you agree! (Another change is that Google Shopping has improved a lot over the last few years, so price comparison is less painful as well.)

One thing Amazon still does best: their deliveries arrive on time, and seem a lot less likely to get stuck in UPS limbo.

ekianjo• 12 years ago

Yeah, even in Japan, they are not the cheapest option anymore, there are usually smaller retailers for specific items that get you better deals, but think about the following cost: - cost to register on a different website - cost to "trust" a minor player you have never used before - cost of time lost because of delay in delivery - cost of how they handle returns

Most of the time, I think a few seconds about the difference in price between amazon and that minor retailer, and unless the difference is huge (which is usually not the case), I'll go for Amazon. Even when I had issues with what I got from Amazon they sent me the replacement item BEFORE I even send back the defectuous item. Who else does that?

mrcharles2• 12 years ago

Possibly true in the US; but in Canada where we get stuck paying bullshit exchange rate premiums all the time, I can still usually save a bit of money. Just recently I bought some audio equipment from amazon.com, which, with duties and taxes prepaid, still came to less than the pre-tax price of anything local. And I live in Toronto; it's not like stuff is hard to find around here.

colinbartlett• 12 years ago

The biggest issue for me is that I need to do a lot of price comparison now. Especially with Prime, it's too easy to filter to Prime-only results and order the first one. But if I take the time to shop around, I can often find a much better price and that diminishes the value of Prime and Amazon to me.

d23• 12 years ago

Seriously, what a bunch of dorks. We had a good run. I knew for the longest time it was inevitable. The convenience factor outweighs the negligible sales tax that I would have to pay elsewhere anyway.

chc2• 12 years ago

I wonder if the difference is really about the competitive advantage per se. The 10% difference is about the same as the difference in price with tax. It sounds like people are actually spending about the same amount, but now part of that budget is going to tax rather than actually being spent on goods.

minouye2• 12 years ago

The biggest sales uptick -- 61 percent for big-ticket items -- went to merchants that use Amazon Marketplace...That means Amazon still indirectly benefits, since it collects a fee from merchants on its marketplace.

Not sure why they buried this at the end of the article. Amazon can still attract price-conscious shoppers by funneling them to marketplace sellers that don't collect sales tax, and can now invest in more fulfillment centers and other initiatives that require nexus (Amazon Fresh, etc.)

justinsb6• 12 years ago

This does seem the most important conclusion. What's likely happening is Amazon is no longer showing themselves as the top seller in some cases. Consumers are still buying on Amazon, but from a different seller, who does not charge sales tax.

What would be impressive is if Amazon made an (algorithmic) judgment call, and showed price-sensitive shoppers that would otherwise go elsewhere the cheaper seller, and shoppers that would tolerate the tax the (presumably higher profit) Amazon offering.

robryan• 12 years ago

They already do that with fulfillment by amazon. There is a certain price difference for which Amazon will show you that fulfilled product vs a cheaper marketplace offer with slower fulfillment/ shipping.

jnbiche• 12 years ago

Now, they need to offer marketplace sellers some type of 2nd-day delivery service at a reasonable price.

Having Amazon Prime and knowing I'll always get the item on the second shipping day means that I'll chose the Prime item even if the marketplace seller is cheaper.

gtaylor4• 12 years ago

I'll gladly pay an additional 6-10% to keep avoiding Wal-mart or Target or even Home Depot. There are people like me who just really hate having to suit up and go shopping. I don't like the traffic, I don't like getting ripped off, and I don't find in-store shopping a fun or magical experience like some do.

I can pull up Amazon and read ratings/reviews, see what kind of problems people ran into with products, and make a reasonably informed decision with my money.

In a big box store, I feel like I'm taking more of a chance unless I stop, scan the barcode, read through reviews. Meanwhile, I look like a silly guy who can't make up his mind.

Yes, I enjoy obsessively comparing reviews/ratings for potential purchases. Even the really cheap/insignificant ones...

WalterBright• 12 years ago

That's right. Going to the mall to buy something is a 2-3 hour time sink, plus gas. Buying online is about 5 minutes, no gas.

ja27• 12 years ago

The "no gas" part is big. I don't think many people realize how much they spend on gas to run errands. A quick run to Target for something is about a 10 mile round trip from my house or about $2 in gas for a typical minivan. A Home Depot or Lowes is more like $4 from here, $5 with tolls.

bradgessler• 12 years ago

If you walk into Bestbuy and show them the item you intend to purchase from Amazon, they'll match the price. With taxes, and assuming you don't have to drive out of your way, this can be more convenient than Amazon. If you need something overnight, it's actually cheaper than Amazon.

umsm• 12 years ago

Bestbuy is very hit-or-miss. It really depends on the people working there.

Some employees are very informative and helpful while many aren't.

baddox• 12 years ago

Depending on your work or living situation, that might not be more convenient. I'm in SF with no car, and I wouldn't even consider going to Best Buy.

gtaylor4• 12 years ago

From where I live, it's a hassle for me to go to any of these big box stores. It's not going to be this way for everyone, I just really don't like going shopping.

The primary benefit of Amazon for me is not having to deal with a brick-and-mortar store.

nnnnni2• 12 years ago

I've actually been able to get them to match it in such a way that the final price (post-tax) matches the non-taxed (final) Amazon price.

travisp• 12 years ago

I live relatively close to Best Buy (I just have to walk a block), but even then, unless I really need something immediately, I'd rather wait 2 days than go into the store, wait in line, and deal with their reluctant customer service. Also, given my experiences with returns, I much more trust that Amazon will treat me well if a return is needed than Best Buy.

jwpeddle• 12 years ago

Best Buy, the place where I had to literally explain to three employees six times that I did not want an extended warranty on my television? I'll pass.

benaiah• 12 years ago

I'd buy a LOT more from Amazon if I didn't live in Alaska and have to wait at least a week and a half for shipping. I hate shopping - if I could reliably get something in a couple days, I'd almost never even need to leave the house, except for groceries.

gtaylor4• 12 years ago

I hate shopping - if I could reliably get something in a couple days, I'd almost never even need to leave the house, except for groceries.

This is exactly how I feel. The primary draw of Amazon for me is that it lets me avoid the brick-and-mortar shopping "experience". Heck, I'd pay extra to not have to deal with it.

sliverstorm2• 12 years ago

Home Depot still gets plenty of my business. I like to buy tools online- mostly for reviews- but lumber & hardware still belong in my local warehouse (or perhaps at a boutique lumber shop on the edge of town). Same goes for many home improvement supplies.

Basically, lots of stuff requires interaction (holding a bracket or a screw in my hand to determine if it will fit) and other stuff (2x10's, 48x96's, toilets, refrigerators etc) is simply unfriendly to shipping. Home Depot of course ships wood, but they specialize in that sort of thing and ship in great bulk.

middus• 12 years ago

I concur. But from what I've read online, you'd be the only person that "suits up" to go shopping at Walmart. (Do not live in America, though.)

theorique3• 12 years ago

Some people "suit up" in a very extraordinary and occasionally disturbing way.

http://www.peopleofwalmart.com/

redboxer13• 12 years ago

Those who don't want to suit up for Walmart, can always shop at Dollar Pallace: http://www.ghettoredhot.com/debra-jackson-dollar-place/

gtaylor4• 12 years ago

I work from home, so "suit up" means "put pants on" for me.

theorique3• 12 years ago

+1 for that. I find "shopping" in a physical space is more of a serendipitous, unpredictable experience. It's nice to get introduced to different products and engage with different brands. It's a totally different experience from getting something exact and specific that you need.

If I know I want exact product XYZ, need it on a time scale of 'days' and not 'hours/minutes', and don't have any other need to go out ... why not order it online?

CaptainZapp• 12 years ago

My definition of Hell?

IKEA on a rainy Saturday afternoon.

(read it somewhere, but really can't recall the source)

bbq3• 12 years ago

Amazon supports federal legislation that would explicitly let states require tax collections by all online retailers above a certain size.

This would give Amazon a huge competitive advantage (given their existing infrastructure). Of course they support this.

adventured• 12 years ago

They get hit with flack coming or going. If they're against online taxes, then they're accused of not doing their fair share to support government coffers, or they're accused of getting an unfair competitive advantage (per offline retailers).

It's similar to Walmart's minimum wage support. If Walmart were against minimum wage increases, their opponents would lambast them for it. If they're in favor of it, they get accused of only being in favor of it because they know they can more easily afford it compared to smaller retailers.

RodericDay• 12 years ago

poor walmart, poor amazon

justinsb6• 12 years ago

Amazon fought tooth and nail against paying sales tax, even in states where they clearly had a presence (California in particular).

Now that they agreed to start paying sales tax going forward (in return for no back-penalties), they are lobbying for their competitors to have to pay sales tax as well.

They are also building warehouses in-state now and trying to compete on speed of delivery, which is a more respectable way to compete against out-of-state rivals.

bbq3• 12 years ago

You're right, I said this accusingly and that's unproductive. I think legislation like this should exist. I don't think it's right to ignore the advantage (assuming we accept they have one here) and the legislation should take it into account.

minouye2• 12 years ago

From the report:

Our data consist of daily transactions for 2,807,476 households from January 1, 2012 to December 31, 2013, and include both banking (i.e., checking, savings, and debit card) and credit card transactions. We observe the date, amount, and description of each transaction.

I'm a little disturbed that they had access to complete transaction information for roughly 2% of American households. Is it common practice for banks to share this data? Surely date + amount + description is personally identifiable in many situations.

gph• 12 years ago

Not to defend the banks, but in what situation could date/amount/description become personally identifiable? I guess it sort of depends on how descriptive the description field is, but if it just lists the product(s) then I don't really know how you'd ever be able to verifiably match it with a name.

cbhl• 12 years ago

An '08 paper from Arvind Narayanan and Vitaly Shmatikov at the University of Texas at Austin showed that, in a large dataset, the combination of a large number of transactions could be used to de-anonymize individuals.

http://www.cs.utexas.edu/~shmat/shmat_oak08netflix.pdf

wycx• 12 years ago

A straightforward solution would be for the US to have a uniform online sales tax, distributed to the state of the shipping address.

Is this intractable?

AnthonyMouse• 12 years ago

All it would take is an Act of Congress, but it's political. Birmingham, Alabama has a sales tax of 10%. New Hampshire has no sales tax. How do you set the rate nationally without making enemies?

justinsb6• 12 years ago

I suspect if you tried to do it federally it would be a violation of States' rights and thus unconstitutional.

pbreit• 12 years ago

There's always a "straightforward solution" where the government just enforces some arbitrary wish. But, to the core, that is not how the USA works.

mutert2• 12 years ago

Amazon is awesome.

Urgo• 12 years ago

They started collecting tax in NC in Feb and I'll be honest, I've bought less since then. Last year when I needed something I went to amazon first and if it was there ordered it. Now I shop around.

mzs3• 12 years ago

I'm curious, in states that have this, how does it work? Is it all online sellers that did not previously collect sales tax or just a few big ones like amazon? Does it show-up on your shopping cart directly or do you have to do forms quarterly say?

MisterBastahrd• 12 years ago

Amazon currently collects taxes if they (or the seller) has a physical presence in your state. Apple does the same thing. In my state, I'm required to pay taxes on every online purchase for which taxes have not already been charged to me.

I keep all my receipts for the year and split them between tax paid and not. I pay taxes on all of the online purchases I make during the year. Most people I know, even in states that require collection of taxes for online purchases, don't claim any at the end of the year. Given that out of state companies are under no compulsion to report purchases to state governments, there simply isn't a whole lot of way for states to know whether the information is accurate except through state tax agency audits.

mzs3• 12 years ago

Thanks for the nice explanation. The state I live in requires to pay a use tax either quarterly or as part of income taxes but for a couple of years at least has allowed you to use a table graduated based on income instead of keeping records.

shittyanalogy• 12 years ago

This is a good thing. It creates an enormous enforcement efficiency as now states can go after amazon (which they won't have to) and not individual tax dodgers. Not having to charge sales tax also creates an unfair business advantage against local stores.

sytelus• 12 years ago

I read the book "The Everything Store". There are large chunk of chapter devoted to how Bezos fought against paying tax. Originally, the argument was that online retailers don't use facilities provided by states so they are not obliged to pay any taxes to states. If I remember correctly, this follows almost directly from constitution. But then states like New York found a loophole which basically says if you have any affiliates in the state then you are physically in that state and so you are obliged to pay taxes. This thing is very messy because some regions not only have state tax but even district and city taxes. So calculating them is very complex task.

When I thought about the whole situation, it became apparent constitution has a bug here. The sales tax is not supposed to be levied because the state is providing some service to the business. It is levied because that's how states want to distribute the burden of taxes on two components: What you earn and what you spend. This way you can target most of the money flow that happens in the state even for edge cases where a person don't have regular income but spends a lot out of his or her inheritance.

So summary here is that online retailers got lucky from this bug in constitution. It was extremely unfair to brick-and-mortar guys who not only have to spend lot of capital but also pay full taxes losing their competitive edge even faster.

Note: Above are just observations and logical arguments. Personally I don't have lot of respect for current tax system.

mratzloff• 12 years ago

It's bullshit anyway. If the state had no infrastructure essential to Amazon, that person couldn't get online, the package couldn't be delivered to them by truck, etc.

Amazon Sales Take a Hit in States With Online Tax

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