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Why Amazon Suddenly Supports Online Sales Taxes

2/19/13

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?

Lots.

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?

 

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Terms: Feel free to be as big a jerk as you want, but don't attack anyone other than me personally. And don't criticize people or companies other than me anonymously. Got something crappy to say? Say it under your real name. Anonymous potshots and personal attacks aimed at me, however, are fine.

Posted by: @interlinejim
Date: 2013-02-24 10:04:43
Subject: Amazon

Well thought out...excellent point of view on what will happen. Thank you.
Posted by: Ron Nixon
Date: 2013-02-21 20:25:33
Subject: Level the playing field by eliminating all online sales and use taxes.

1. Eliminate all online sales and use taxes. 2. Impose a Processing Fee (PFE) on every sale made - no exceptions. (This is a fee not a tax.) 3. Every time a sale is made a % of that sale is transferred into a holding account. Once the processing fee is deposited in the holding account, it cannot be reversed. 4. At midnight, the holding account is transferred to a Federal computer. 5. The Federal computer takes the money received and immediately transfers it, less an agreed upon processing fee that pays for the computer, to state computers based on whatever system the states are willing to agree upon. 6. Once this works properly for the big guys, the one million in sales can be dropped to 500,000 and then to progressively lower amounts. Within a few years EVERYONE selling on the Internet will pay their fair share in processing fees. Since the PFE goes to a Federal computer, trying to beat the system should be a Federal crime. If elected officials don't spend the money faster than it is collected, the % should be lower as more and more businesses begin paying their PFE fees. (Every business selling on the Internet, no exceptions, should pay a PFE.) Cost of collecting and processing PFEs should be minimal for both government and private businesses. You won't need lawyers and accountants to figure out how to beat the system. You sell something on the Internet and you pay your PFE. You try to beat the system and you deal with the IRS or another Federal agency. Companies who work with affiliates and companies like PayPal who offer shopping carts, would collect a PFE for every transaction. This would eliminate everyone using these systems from the burden of collecting and disbursing PFEs for those sales. I hope someone, much smarter than I am, reads this and comes up with his or her own way to simplify online taxes and reduce the paperwork that will be inflicted on small businesses across our wonderful country.

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