Why Amazon is winning online retail and should fold on this silly sales tax fight

Why Amazon is winning online retail and should fold on this silly sales tax fight

Summary: Rather than fighting it out on a state-by-state basis, Amazon needs to man-up and do what's right. Our IT jobs are at stake.

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Dollar sign image courtesy Flickr user mikeporesky. Jeff Bezos image courtesy Amazon. Jerry Brown image courtesy State of California.

I am not your typical consumer. I don't normally buy very much. Every few years, I'll replace my suit and about twice a decade, my wife will decide my T-shirts are too ratty and she'll replace them. I do buy some consumer electronics and computer parts, but I generally buy from Amazon or Newegg, and that's about it.

But that's changed recently.

Two projects have required me to do a lot of purchasing. We're renovating our new house, so there's a lot of house-related items we've needed to buy, from shelving systems to hot water heater expansion tanks. I'm also building a studio for the radio programs and TV work I do, so that's necessitated buying a lot of custom lighting and sound management gear.

This has forced me to expand beyond the soft, warm, immediate gratification comfort of Amazon Prime. For those of you not familiar with it, Amazon Prime is a service you pay $80 a year for, and it gets you free two-day shipping or $3.99 overnight shipping. Not everything on Amazon is Prime eligible, but most of what my wife and I have bought has been.

The free shipping is a huge deal. We recently bought a headboard that, alone, would have cost over a hundred bucks to ship. With Amazon Prime, shipping was free. We often buy from Amazon first, before even checking with the local stores, because if Amazon has it, we don't have to take the time to go to the local store. Since it's free shipping, unless we need something perishable or now, Prime is the more optimal experience.

The other compelling advantage of Amazon is something I hadn't really grokked until this round of project purchases. Amazon ships things to you when you order them. You generally know that if you order something, it'll either be there tomorrow or the day after.

This, alone, is blowing away the other online retailers. I have been shocked at how long it takes to get products I've ordered from other places online. I ordered a set of cheap HDMI cables from a company who's entire business is HDMI cables, and it took a week for them to process the order, before they even began the pick-pack-ship process.

I ordered a set of wire shelves from a company who's primary business is selling wire shelves, and they can't tell you either the status of your order or when you'll get it. Generally, it takes about two-to-three weeks, but you never really know. Plus, the shipping costs are off the charts.

I ordered some studio equipment from a well-known online retailer in New York. Even though their Web site said everything was in stock, by the time they processed my order four days later, a few of the items were no longer in stock. They had no mechanism to cancel only part of the order, so I'm still waiting on a few items. The guy I talked to said they might arrive next week.

You can see why Amazon Prime is so compelling.

It's now a default behavior for me to check if the product is sold and shipped by Amazon, before ordering anywhere else. It's not really a price issue. I don't mind spending five bucks more. I don't even mind (as much) spending on shipping -- although that can add up. What I mind is that many of Amazon's competitors are taking days or even weeks to simply enter their order into their shipping system, and that's before the wait for the shipping.

So, not only am I paying a lot more for the shipping, I'm waiting days to weeks for the privilege.

And this is why Amazon's affiliate tax battle with the states is so silly.

First, let's be clear: the states are all hurting. They're not getting the financial help from the federal government they really need to provide basic services, and revenues from both income taxes and sales taxes are down. It's not just the economy, but Amazon and other online retailers are changing purchasing patterns and more and more people are like me. We prefer the convenience and practicality of ordering online rather than trying to get to a local store.

See also: RIP: Borders Books

Because the states are so hungry, because they see Amazon as the bad guy for many of their tax revenue problems, they're not going to give up. They see Amazon as stealing money from their states, money they need to provide services.

It may not happen this year, but it's inevitable. Amazon is going to lose this war. Too much is at stake in each of the states, and the feds aren't going to help. If Amazon goes to the federal government for a get-out-of-taxes free card, the feds will eventually figure out that if Amazon doesn't provide tax revenue to the states, the U.S. Treasury will have to make up the difference.

Our congress critters may be childish and generally useless, but they do understand that it's better for their careers to let the states raise taxes than to let their records show they raised taxes just to pay them out to the states.

Given that this is undoubtedly a lost cause for Amazon, and given that Amazon already has so many structural advantages (like shipping within, you know, a week) over their competitors, it's time for Amazon to bite the bullet (and us, too) and pay sales tax.

Rather than fighting it out on a state-by-state basis, and yanking on the incomes of their affiliates while they're doing it, Amazon needs to man-up and do what's right.

None of us like taxes, but we do like roads, police, fire protection, and public schools. Those services don't come for free.

By the way, if states don't get enough revenue from sales tax, one way they're able to save money is outsourcing jobs. Our IT jobs.

See also: Amazon Drops California In Growing E-Commerce Affiliate Tax Law War

Topics: Amazon, Banking, Government, Government US

About

David Gewirtz, Distinguished Lecturer at CBS Interactive, is an author, U.S. policy advisor, and computer scientist. He is featured in the History Channel special The President's Book of Secrets and is a member of the National Press Club.

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137 comments
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  • It's not Amazon's battle, it's the consumer who has to pay.

    Sales tax is one of the most regressive forms of tax, disproportionately affecting lower income consumers. Should Amazon "lose the battle" then the money comes out of our pockets, not theirs. If the states want to increase their tax revenues, they have a simple mechanism to do it: raise tax rates, then deal with the political consequences. They have chosen to avoid this and look for ways to "hide" the tax increase.

    As for the Fed "get-out-of-taxes" card, it has already been played by the Supreme Court. The states may whine and try to circumvent the decision, but they run a real risk of being overruled once again in court. You paint the picture of an inevitable loss by Amazon and interstate retailers that has little basis in fact.

    If the states want an interstate tax system, they have to go to the US Congress to get it, plain and simple. And given the conditions on Capitol Hill, they already know that is not going to get them what they want.
    terry flores
    • RE: Why Amazon is winning online retail and should fold on this silly sales tax fight

      @terry flores <br>Amazon gets the benefit of a nearly 10% discount compared to the retail store up the street hiring your neighbors.<br><br>In California, there is a use tax. If I buy something from Amazon and I do not pay sales tax, I need to report the purchase and pay the 9.75% (LA) to the state when I file my income taxes.<br><br>Now, I'm paying attention to this and reporting everything, so I'm not saving any money for Amazon not charging me sales tax.<br><br>Amazon's only cost for collecting and paying sales tax is the administrative cost of figuring and applying the correct rate and filing correctly. Because they collect today and would pay about the 20th or 31st of the next month, they could get interest float.<br><br>Near as I can tell, the only reason Amazon wants to be sales tax free is so they have a price advantage over the brick and mortars, a price advantage that exists only because buyers don't understand the tax laws or are cheating.
      DannyO_0x98
      • RE: Why Amazon is winning online retail and should fold on this silly sales tax fight

        @DannyO_0x98
        The people demand there should be no more tax hikes!
        This is what voters chose in 2010 and will demand again in2012.
        We are taxed enough and the states should better eliminate sales tax altogether.
        Linux Geek
      • RE: Why Amazon is winning online retail and should fold on this silly sales tax fight

        @Linux Geek

        Taxed enough?! See that's the problem with this country. People want to take and take and take but when it's time to pay, they complain to no end. We have lower tax rates now then back in the 50's. Stop giving tax cuts (which is tax spending) to the rich!
        jmiller1978
      • RE: Why Amazon is winning online retail and should fold on this silly sales tax fight

        @DannyO_0x98 Amazon also has to charge (or include) shipping costs that are not part of a local purchase. The two balance each other out. Local retailers are not looking for a "fair deal", they are looking for any advantage they can find against a retail model that has outpaced theirs in terms of profit and viability. And it isn't new, mail-order retailing has existed for over a century. But the internet has brought speed, convenience and variety to an industry that had been growing moribund.

        Most importantly, it has brought a level of information to consumers that has undercut the basic tenets of retail merchandising. Retailers have long relied on ignorant consumers who could be distracted by flashy promotions and displays and drive impulse purchases. Now that consumers can educate themselves and shop in a much larger market, there are many traditional retailers who are just not competitive anymore, and deserve to fade away.
        terry flores
      • LinuxGeek should foad.

        @Linux Geek: "The people" are stupid. "The people" would want to enjoy public education, parks, high quality water, and would like to pay 0$ for that. That isn't realistic.
        snoop0x7b
      • RE: Why Amazon is winning online retail and should fold on this silly sales tax fight

        @DannyO_0x98 Actually the cost to Amazon is huge much like any other business. Application of sales tax is one of the most complex financial activities in the retail business. For a company like Amazon it is a huge expense. Why? Let me give you a few examples:<br><br>1 - at random intervals and on random dates different states come up with sales tax holidays...who is to program Amazon software for that?<br>2 - in some states there is no sales tax...who is to program Amazon software for that?<br>3 - in a given state, different rates apply to different products...say New Jersey has no sales tax on clothing, but has sales tax on nails...who is to program Amazon software for that?<br>4 - in some states, same products but different type gets different rates...example...in North Caroline, cable above certain gauge has lower sales tax than cable below that gauge...who is to program Amazon systems for that?<br><br>This is just a short list from someone who had to deal with sales tax issues in enterprise systems before. What the states want is some more cashflow and the same government waste looking for the tax dollars also is not sensitive one single molecule to the cost it takes to accurately calculate, collect and deposit sales tax.
        mikies
      • RE: Why Amazon is winning online retail and should fold on this silly sales tax fight

        @DannyO_0x98 I'm betting you're one of the VERY few in California paying that 10%.
        blueskip
      • RE: Why Amazon is winning online retail and should fold on this silly sales tax fight

        @Linux Geek No this isn't what the majority of voters chose. The so called elected officials you speak of are all for giving tax breaks to the rich and screwing the middle class over. I've seen the tea baggers. They aren't getting it on basic math.
        blueskip
      • RE: Why Amazon is winning online retail and should fold on this silly sales tax fight

        @jmiller1978. Before you start increasing the tax on the "rich", start collecting taxes from the illegals. In 2009, the neighboring county started cracking down on illegals. Nearly 2000 of them dropped out of their county school and into the county schools where I live.

        The published school budget broke it down to $13K/student. Or $26M increase because of the illegal migration. For every $3 spent on textbooks, we - the legal taxpayers - are 'privledged' to spend $8 on translation services and ESOL instruction.

        And frankly, I'm fed up with having to spend and spend and spend to pay for people who are not paying into the system! The county Government has ignored the problem for so long, even county Government workers were arrested as part of an INS/ICE sting.
        SoccerDad#2
      • It's not that simple

        This isn't just Amazon, it's thousands of small retailers (like myself) where adding 40-60 hours of time each quarter is very, very significant. The "cost" is not that simple either, B&M has advantages as well, inventory cost is non-existent, it's already paid for by the B&M anything sold online is bonus. Local access, advertising built into the facility, credibility, etc.

        I have no pity for the States, if they're anything like CA, they pissed most of the money away from the booms. It's funny, now they complain about Prop 13, silence when there were record housing prices. Where did all that money go? Oh, into more fat cat union salaries, that will never be cut.
        stano360
      • The double insult of taxes

        There are two lies around taxes that get me steamed. One is that somehow, we can receive government services without paying them. And the other is that the work to prepare them and maintain the records is OK to arbitrarily impose upon us. The first lie is quite obvious to anyone who thinks about it - with the exception of politicians and tea-partiers - and results in an ever increasing transfer of federal tax liability to state and local taxes which include sales taxes. This transfer is generally more regressive (harder on the poor) than federal tax and because the poor & middle class spend most of their money rather than socking it away, this transfer lowers GDP and kills jobs. The second lie is the one that you fell for, Terry. I live in California too, but it will be a cold day in hell when I transfer the burden of paying sales tax from my vendors to my own paperwork. I am too busy trying to build a business that hires other citizens to work to the State of California's Franchise Tax Board as an unpaid bookkeeper. The only "cheating" that happens is when the state "cheats" you out of your time and life-energy, which they thankfully can't easily enforce. That you so willingly comply is more of a black mark on you than it is on those who have more productive things to do with their limited time on this planet.

        As much as I love not paying sales tax for Amazon purchases, I certainly would rather pay it than file paperwork. And I'd much rather that our federal tax rates be returned to that of the 1980s (when all those famous tea-partiers weren't complaining about them) which would unburden the states from charging such high sales taxes in the first place.
        enovikoff
    • RE: Why Amazon is winning online retail and should fold on this silly sales tax fight

      @terry flores

      "Sales tax is one of the most regressive forms of tax, disproportionately affecting lower income consumers."

      Please explain to me how a fixed rate tax on an expense is somehow disproportionate to lower income consumers. If I spend $10,000 the tax I owe is $600 (MD sales tax) but if I only spend $100, I only owe $6. If it were up to Republicans, the lower income families would be doing most of the heavy lifting while the rich pay nothing. Now THAT is disproportionate!
      jmiller1978
      • RE: Why Amazon is winning online retail and should fold on this silly sales tax fight

        @jmiller1978

        The states like the Federal Govt spend too much money. Like you...you have to live within your means. If you needed more money to cover expenses you have 2 choices: get a second job or cut expenses. Common sense says cut expenses. Get it!
        rrushing@...
      • RE: Why Amazon is winning online retail and should fold on this silly sales tax fight

        @rrushing

        There's no disputing that some states (mine included) are getting spend happy and it's affecting states with both Republican and Democratic governors. I was just disagreeing with how sales taxes are somehow unfair to lower income families.
        jmiller1978
      • RE: Why Amazon is winning online retail and should fold on this silly sales tax fight

        @jmiller1978 Sales tax on consumer vs. capital goods is regressive, since these expenditures take up a higher percentage of the budget of a person or family with a lower income and come with a higher relative tax burden. A 2004 OMB study showed that a household making $40K/year could spend 40 percent of their income on taxable consumer goods, while one making $400K per year would spend only about 7 percent. Add to that the fact that very few low and middle income families are able to use the sales tax deduction, while 99 percent of those making over million deduct them (IRS 2006). The current sales taxes, "sin" taxes, and fuel taxes put an enormous burden on the middle class that is not shared by the rich.
        terry flores
      • RE: Why Amazon is winning online retail and should fold on this silly sales tax fight

        @jmiller1978

        LOL, your second point is very correct. But regressive tax is in relation to persons disposable incomes. There a sales taxes is said to be regressive as the person who have more disposbale incomes (like the rich) and the lower income consumer all pay the same amount. The effect is greater on the lower imcome person, hence the term regressive.
        adrian.agarrat@...
      • RE: Why Amazon is winning online retail and should fold on this silly sales tax fight

        @jmiller1978

        The deal is that higher income people do not generally spend as much of their income on taxable items - yes, the amount does increase, but not in proportion. Whatever higher income folks send to savings and other investments is not taxable in the form of a sales tax. Folks at the "low end" of the income spectrum nore generally end up spending 100% of their income on taxable goods & services. THAT is why sales tax is not equitable - it truly does discriminate against the concumer who has to spend all of their income on mere existence, compared to higher income folks who may spend much lower proportions on necessities, and are more free to allocate the discretionary portion of their income to other, likely non-taxable items, services, or investments.
        Willnott
      • RE:

        @jmiller1978

        You miss the fact that the rich are able to go out of country or overseas where they can 'dodge' the sales taxes period and done with.

        THAT is why it is regressive to lower income people, jmiller.... do us all a favor and THINK before you post next time, please!

        Otherwise, you are just going to keep on embarrassing yourself, as in this case.
        Lerianis10
      • RE:

        @jmiller1978

        Yes, there is disputing that states are getting spend happy. Adjusted for inflation (that little thing that conservatives H A T E to do because it always busts their beliefs) almost every state in the United States (with the slight exception of California) is spending LESS than they did in the 1970's.... much less, in some cases. The feds don't have a spending problem.... they have a REVENUE problem.
        Lerianis10