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Internet Sales Tax Coming Too Late for Some Stores

| Written by ILSR Admin | No Comments | Updated on Apr 27, 2013 The content that follows was originally published on the Institute for Local Self-Reliance website at https://ilsr.org/internet-sales-tax-coming-late-stores/

The New York Times, April 27, 2013

Anita Demetropoulos, a Maine shopkeeper, figured she would never see the day when her most relentless competitor, Amazon, would be forced to collect sales tax.

Now that Congress seems ready to do that, she is no longer sure it matters. Even in losing, the e-commerce powerhouse is triumphant. It no longer needs the tax break to vanquish its foes — and could even make money by collecting the new taxes for other retailers.

“I’m surprised and glad this is happening,” said Ms. Demetropoulos, who owns three toy stores with her husband. “But Amazon won’t rest until it gobbles up everyone and everything.”

The Senate is poised to pass a bill to require all but the smallest online sellers to collect the tax. The House appears likely to follow suit. Although Amazon’s desire to avoid the tax played a fundamental role in its founding and growth, it is a supporter of the legislation.

As it builds new warehouses and extends its already considerable reach, Amazon is relying less on price than speedy delivery, free shipping and a selection that encompasses just about everything. Small retailers say Amazon was always a significant opponent, and is now a fearsome one.

“It’s beyond frustrating that Congress waited until Amazon became so dominant that having a massive tax advantage is no longer essential to its strategy,” said Stacy Mitchell, a senior researcher with the Institute for Local Self-Reliance. “The right time to fix this was a decade ago, when it could have saved many local businesses.”

Anita Demetropoulos, who owns three toy stores, is surprised and glad the tax is likely.

Analysts who closely follow the fortunes of Amazon say collecting taxes is unlikely to drive away its customers. They say it may even help the Seattle company while simultaneously defusing a potent political issue.

In the few states where the company has already begun collecting, said Gene Munster, an analyst with Piper Jaffray, sales dip for about a year. “Then the customers come back for the convenience and selection,” he said.

Figuring out the tax in thousands of jurisdictions could be a logistical nightmare for merchants just above the legislation’s threshold of $1 million in annual revenue. That is another place where Amazon is expected to benefit; it could sell tax collection services to tens of thousands of third parties.

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In recent years, states struggling in the recession became more aggressive toward Amazon. Texas, New York and California all pursued the company over the tax issue. Amazon began making deals to collect the tax while simultaneously building warehouses that would bring it closer to its customers, bringing same-day delivery within reach.

Andy Ross, the former owner of Cody’s, the famous Berkeley bookstore that went out of business in 2008, sees “a little irony” in these developments.

“As always, Amazon is nimble enough to make lemons out of lemonade,” said Mr. Ross, who was regularly outraged by the tax issue when he was competing against the e-commerce company.

“But there is no question that the free ride it received for 18 years on the sales tax issue gave it a huge competitive advantage.”

Last August, an Amazon executive testified before Congress that all “sellers should compete on a level playing field” and that the states really needed the tax money, which was estimated to be more than $10 billion annually. When the Senate introduced the legislation in February, Amazon wrote to the sponsoring senators to thank them.

…snip…

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