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Analysis: Amazon Faces Taxing Issues As The Pressure On E-tailers Mounts


Since their inception, online-only retailers like

have enjoyed a competitive advantage by not
being required to collect sales tax in most localities.

But that could soon change given the dire budgetary
straights of states and the massive lobbying efforts of major
brick-and-mortar chains.

At stake are billions of dollars in potential revenue for
state and local coffers, and a more level playing field for
storefront merchants who are steadily shedding market
share to e-tailers.

Currently, Amazon collects sales tax in five states where
it maintains “a physical presence,” as dictated by a 1992
Supreme Court decision, Quill v. North Dakota. The e-tailer
is suing one of them, New York, and has taken retaliatory
actions against states including Arkansas, Connecticut, Illinois,
North Carolina, Rhode Island, South Carolina, Tennessee
and Texas, for expanding the definition of physical
presence to include facilities of subsidiaries and third-party
affiliates who sell on its site. In addition to lawsuits, measures
have included dropping local affiliates and closing or
threatening to close or relocate distribution centers.

Amazon’s stance, as reiterated by founder/CEO Jeff
Bezos at the company’s annual shareholders’ meeting last
month, is that the burden of collecting sales tax for some
7,500 states and municipalities across the country is costly
and impractical. Instead, the e-tailer said, it would welcome
federal legislation that streamlines tax rules and administrative
requirements across all jurisdictions.

Bezos believes such a measure is attainable within 10
years, although a move in that direction is already afoot.
Sen. Dick Durbin, the Democrats’ assistant majority leader
from Illinois, is the chief sponsor of the Main Street Fairness
Act, which promises to simplify rules and tax rates
and reduce collection costs. While the bill is backed by a
number of powerful retail lobbying groups, including the National
Retail Federation (NRF) and the Retail Industry Leaders
Association (RILA), it will likely prove unpopular with
a recession-weary public, making its near-term passage

Meanwhile, a recently formed coalition of big-box chains
called Alliance for Main Street Fairness (AMSF) continues
to apply pressure at the state level. The group, whose members
include Best Buy, The Home Depot, Sears, Target and
Walmart, purports to have the welfare of small businesses
in mind, although many of the founding chains themselves
have been vilified for hurting independent dealers and local

What impact a blanket tax policy would have on Amazon
is unclear. Credit Suisse analysts estimated that such
legislation would have trimmed nearly 3 percent, or some
$650 million, from the company’s forecasted 2011 revenue
in North America.

But analysts at Wells Fargo Securities found that Amazon’s
prices are, on average, 5 percent to 6 percent lower
than Walmart’s and 12 percent to 13 percent lower than
Target’s before tax savings are factored in. Bezos himself
noted that the company already collects taxes in about half
the places in which it does business around the world, while
industry observers believe that removing the tax loophole
would only free up Amazon to open more distribution facilities
in major markets to further reduce delivery time and
increase share.

So tax or no tax, Amazon is clearly here to stay.