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Amazon Primed For Nationwide Sales-Tax Collection

6/02/2013 08:00:00 PM Eastern

SEATTLE – At first blush it may sound counterintuitive, but Amazon.com fully backs the Marketplace Fairness Act, the federal legislation that would make state and local sales-tax collection mandatory for many online transactions.

What’s more, the e-tailer has supported a simplified, nationwide framework for state sales-tax collection for more than a decade, Amazon spokesman Ty Rogers relayed to TWICE.

Amazon’s sales-tax stance reflects a fundamental shift in its distribution and fulfillment strategy. In its early years the company relied heavily on distributors to provide a virtual assortment that could be direct-shipped to customers, and it described its limited brick-and-mortar overhead as a competitive advantage.

Its lack of a local physical presence, or nexus, also shielded it from sales-tax collection under a 1992 Supreme Court decision, and Amazon fought fiercely to maintain its tax advantage. Its hardball battles with states that attempted to reclassify local marketplace sellers as nexuses led to Amazon famously dropping its affiliates in California, Connecticut, Colorado, Hawaii, Illinois, North Carolina and Rhode Island, and it shut a Dallas distribution center rather than charge sales tax in Texas and pay Amazon Primed For Nationwide Sales-Tax Collection penalties when its nexus exemption was challenged.

But with volume and product selection soaring, shorter shipping times becoming paramount, and momentum building for online sales-tax enforcement, Amazon began an aggressive build-out of fulfillment centers, which now number well more than 40 facilities across 14 states. Despite the capital investment, these advanced distribution centers have lowered fulfillment costs, ensured greater in-stock inventory availability, and created a new revenue stream by offering fulfillment services to third-party sellers.

“For many years, Amazon has invested heavily in distribution centers in the U.S. and worldwide,” Rogers said. “There are a lot of contributing factors we consider when deciding where to place a new fulfillment center. Most importantly, we want to make sure a fulfillment center is placed as close to the customer as possible to ensure we can offer a great Prime service and good shipping speeds to customers.”

Rather than continue fighting costly statehouse battles, which became a rear guard action at best, Amazon negotiated concessions and amnesty deals in return for the jobs and taxes its distribution centers would generate, and is pushing for the federal legislation that will require all large online sellers to collect state and local taxes under a streamlined system.

So far the impact of tax collection on Amazon appears minimal. According to its most recent 10-K filing, more than half the company’s revenue is already derived from jurisdictions where it collects sales tax or its equivalent, and the once daunting task of collecting and remitting taxes for thousands of state and local districts is now readily handled by software, Amazon’s global public policy VP Paul Misener told the Senate Commerce Committee last summer.

What’s more, research by Wells Fargo discounts Amazon’s tax advantage as a major factor in its success. A September survey by the financial services firm showed little shift in Texans’ shopping behavior after Amazon began collecting sales tax three months earlier in the Lone Star State. Most consumers were seemingly unaware of the change, analyst Matt Nemer wrote, and respondents cited convenience over tax savings as the more important determinant of shopping destination.

Meanwhile, an earlier Wells Fargo study showed that even before tax savings are factored in, Amazon’s prices were still, on average, 5 percent to 6 percent lower than Walmart’s and 12 to 13 percent lower than Target’s.

Going forward, the company is extending its physical footprint with Amazon Lockers, self-service pickup stations located in leased areas at pharmacies, supermarkets, Staples, 7-Elevens and other storefronts in Los Angeles, London, New York, San Francisco, Seattle and Washington, D.C., and is providing same-day delivery service in 10 major metro areas.

As for the long-rumored rollout of Amazon retail stores, the e-tailer declined to comment. But a recent report by Forrester Research quoted a former product category manager who said the company has been close to opening showrooms before and, pending a nationwide resolution of the sales-tax issue, expects it “to open beta storefronts at some point.”

Forrester believes the showrooms will be located in major metro areas, and will be used to showcase Amazon’s proprietary CE products and possibly serve as a hub for order pickups and other consumer and small-business services like retail banking and parcel shipment.

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