Why Amazon Suddenly Supports Online Sales Taxes
By Ken Magill
Amazon used to be against collecting taxes on sales to consumers in states where it doesn’t have a physical presence. In November it switched sides.
And when the Marketplace Fairness Act was introduced in the House and Senate last week, Amazon was listed among its supporters.
So what happened?
Amazon can expect to benefit from the collection of online sales taxes in at least three ways.
The U.S. Supreme Court ruled in Quill v. North Dakota in 1992 that states could not collect sales taxes from a business that had no physical presence in the state.
In order to provide lightning-fast shipping, Amazon is on a fulfillment-center building spree resulting in an increasing physical presence across America.
According to a report by supply-chain consultant MWPVL International:
“In 2011, the company [Amazon] added 10 fulfillment centers totaling 8.68 Million square feet of space in North America. In 2012, Amazon opened 9 new massive distribution centers in North America (including Canada) totaling 8.45 Million square feet.
“Plans for 2013 are unfolding and to date we are aware of 9 new distribution centers exceeding 7.3 Million square feet in the U.S.
“As [of] January, 2013, Amazon.com operates approximately 42 fulfillment centers in North America exceeding 32.4 Million square feet of space.”
So as Amazon works toward a physical presence in all 50 states and will have to charge sales taxes there anyway, why not use the club of government to whack smaller competitors?
But wait, there’s more.
Last May it was reported that Amazon was in early negotiations with two municipalities in California in which it planned to build fulfillment centers deals under which it would pocket most of the locally earmarked tax revenue.
It’s not a stretch to think Amazon is negotiating—or at least would like to negotiate—similar deals with officials in other municipalities.
So why not collect online sales taxes if they can be made into another revenue stream?
And speaking of turning the collection of online sales taxes into revenue, Amazon offers a service to its Marketplace merchants where it will collect sales taxes on their behalves for a fee of “2.9 percent of all sales and use taxes and other transaction-based charges we collect.”
According to a June, 2012 report in the Wall Street Journal: “Amazon takes a commission for every marketplace sale—a 6 percent cut for personal computers, for instance, to as high as 15 percent for mobile phones and musical instruments—and charges larger sellers a monthly membership fee. Overall, the marketplace generates 9 percent to 12 percent of Amazon's total $48.1 billion in annual revenue, according to analyst estimates.”
Tack on 2.9 percent of the sales taxes and other transaction-based charges and we’ve got another nice little revenue stream.
So given all these conditions, the question isn’t why Amazon would come out in favor of the Marketplace Fairness Act. It’s why wouldn’t it?