November 16th, 2011
Amazon always enjoys a blizzard of online sales during “Black Friday” — but they don’t collect any state sales tax. And yet surprisingly, Amazon’s just issued a press release saying they support a new law which creates a national system allowing states to collect their usual taxes from purchases made online. “It’s a win-win resolution,” an Amazon vice president said in the press release, promising that Amazon “will work with Congress, retailers, and the states to get this bi-partisan legislation passed.”
Five Republican Senators and five Democrats have co-sponsored the “Marketplace Fairness Act,” and even anti-tax conservative groups are supporting the legislation, reports the Los Angeles Times, because it includes a state-by-state implementation rather than a single national solution. (“The law would allow states to become part of a group of 24 states that have adopted a streamlined system to reduce the complications for retailers in figuring out a customer’s exact sales tax.”) And states could even impose their own unique taxes if they meet some basic requirements about simplicity. “I think we’ve finally found the sweet spot,” said one Senator from Illinois.
Small businesses are exempt if their annual sales are less than $500,000, and the Senators seem confident that the new legislation will be passed. “If I were president of an online retailer…I would look at this week in Washington, D.C.,” said a Senator for Tennesse, “and I’d make my plans to start collecting sales taxes wherever I sold things in the United States.” It’s good news for state governments, which could receive a total of $23 billion in new tax revenue, according to one Senator. “It’s about closing a tax loophole,” said another lawmaker. “It’s about stopping the subsidization of some businesses over others.”
So why is Amazon excited about paying state sales taxes? If you ask Amazon’s Vice President of Global Public Policy, he’d tell you that they’ll still remain competitive on price. (“As analysts have noted, Amazon offers customers the best prices with or without sales tax,” he said in a statement.) But that hints at a larger loophole that Amazon may be able to exploit. The reason they offer the best prices is their massive size, which allows them to pressure book publishers (and other retailers) for the cheapest possible discounts — and they may be able to exert the same pressure on the individual states who want to tax them.
I think it’s the Kindle that may actually have been responsible for Amazon’s change of heart. Amazon says they’re now building “millions more” of the new Kindle Fire tablets than they’d expected, and they’ll presumably end up offering unlimited two-day shipping (and cheaper one-day shipping) to hundreds of thousands of new customers. And the best way to reduce those shipping costs is to have fulfillment centers in lots of different states. But this obviously makes it harder for Amazon to avoid state sales taxes by then claiming, as they have in the past, that Amazon doesn’t have a “physical presence” in a state. Maybe Amazon’s just going to rely on a new tactic: the ability to pressure those states individually. Instead of a national sales tax, these new taxes will only be imposed at the individual discretion of each separate state legislature.
And that’s an area where multi-billion dollar companies like Amazon can still exert a lot of pressure…