By Larry Dignan | March 18, 201
Amazon’s tax battle with cash-strapped states continues and the various
skirmishes could take years to resolve. The big question is what happens to
Amazon in a worst-case scenario where it has to collect sales taxes in every
First, let’s recap the latest state tax issue for Amazon. Earlier this month,
its affiliate program in Illinois after the state passed a law that would
require the e-commerce giant to collect sales taxes on purchases by residents.
Under current law, Amazon only has to collect sales taxes when it has a
facility, say a distribution center, in a state. State legislatures argue that
an affiliate is a location. When a law passes, Amazon drops affiliates and the
political battle continues.
Amazon calls these sales tax laws “unconstitutional and counterproductive” since
they hurt small businesses (Amazon’s affiliates). Amazon also notes that
lobbyists backed by retailers are pushing these state tax bills. Amazon has
threated to cut off affiliates in California and has already closed programs in
Colorado, North Carolina and Rhode Island.
The Wall Street Journal on Thursday highlighted the
Alliance for Main Street Fairness, which is pushing the state tax issue. The
group has a series of blog posts blasting Amazon for avoiding state taxes. Some
say that brick-and-mortar retailers are at a disadvantage due to the tax laws.
Amazon obviously disagrees.
But let’s fast forward beyond the politics and the play-by-play. What happens if
Amazon loses the state tax battle?
For starters, Amazon’s affiliate program ends. As noted previously, ending the
affiliate program wouldn’t hurt revenue.
The bigger issue is what happens when the prices on the street match what you
get online. A Journal graphic illustrated how Target, Amazon and Wal-Mart
pricing for electronic goods aren’t all that different when you factor in sales
taxes for all three retailers.
In many cases Amazon is still cheaper, but any shipping cost would probably make
the company more expensive. If pricing were roughly equal against all online
retailers the following questions about Amazon would be raised:
Would convenience of Amazon be the tie-breaker?
Does Amazon have the loyalty if it doesn’t have an edge in price?
How important are state taxes in the online buying decision?
I’d argue that Amazon would probably do fine even collecting sales taxes. Amazon
has a loyal customer base as well as subscription buying that can acquire more
consumer wallet share. The big unknown is that last question: Do sales taxes
The answer: You bet. I grew up in Delaware—home of tax free shopping—and I still
get angry paying a sales tax. Sales taxes stink a little less than ridiculously
high property taxes, but you still notice the hit. All things being equal I’ll
buy a big item online if the shipping is free and the taxes are zilch.
Now if this state tax thing goes against Amazon, the big defense will be Amazon
recently tossed in free media streaming to its Prime free shipping program.
Rest assured, a free Kindle will be added at some point in the years to come.
Simply put, the more perks Amazon can add to Prime the more shipping becomes
less of an issue. If Amazon can get revenue from Prime, offer free shipping
everywhere and then be efficient enough to undercut rivals on pricing the state
tax issue—assuming Amazon loses the state-by-state war—can be neutralized.