It’s always interesting to note when an industry leader deviates from a winning strategy.
Thinking about it from reports of the the roll-out of Amazon.com’s Kindle e-reader in Target stores nationwide. Clearly, despite Amazon.com’s phenomenal online retail success, the company has realized that many consumers will need the opportunity to test-drive a Kindle e-reader in a bricks-and-mortar setting before spending $259, especially given the availability of the iPad and other competing devices.
For a company that has long touted a laser-like focus on customer experience and the allure of an Internet browser showroom, this debut in Target is a rich irony, and, also, a sad one. More than any other online retailer, Amazon.com’s obstinate refusal to collect the sales tax mandated by law for online sales has inflicted significant damage on both the businesses of law-abiding Main Street retailers and the local communities that depend on sales tax revenues for vital services.
For more than a decade, Amazon.com has argued that it has no obligation to collect sales tax for its online sales, despite its direct relationship with in-state affiliates who market and refer sales to Amazon.com, a relationship that establishes both Amazon’s presence in a state and its responsibility to collect sales tax. Now that it is leveraging the benefit of physical retail locations for its bestselling product, Amazon’s claims that it does not benefit from the public services paid for by sales tax are seen quite a different light. And an additional irony is that the Kindle is being sold in Target stores, the company for which Amazon.com calculated and collected sales tax for online sales -- even while claiming that such operations were too burdensome for its own operations.
Given the harm Amazon.com’s poor corporate citizenship is inflicting on communities nationwide, all this is much more than a academic argument. A University of Tennessee study projects that total state and local sales and use tax revenue losses from e-commerce sales nationwide will likely exceed $9 billion in 2010 alone, and the number is estimated to grow to more than $12 billion in 2012. This loss comes during the worst recession since the 1930s, which has caused the steepest decline in state tax receipts on record. At least 46 states face or have faced shortfalls for the upcoming fiscal year, according to the Center on Budget and Policy Priorities, and these states will continue to grapple with the challenge of finding revenue to fund such critical services as education and policing, threatening hundreds of thousands of jobs.
In no small measure, Amazon.com’s business model rests on that the price advantage it enjoys over Main Street business that play by the rules and collect sales tax -- indeed, the online giant has acknowledged this fact in its reports to the SEC. One clear sign of how important it is to Amazon to preserve this inequity is that it spent more than $1 million over the past six months to lobby in Washington to make sure that it maintained the high ground on this uneven playing field, among other issues. A recent New York Times editorial looked at “how far Amazon is willing to go to protect a business model that relies on not collecting sales tax” and pointed out that “noncollection gives Amazon a major unfair advantage over rival retailers that do collect sales tax and deprives hard-pressed states of much-needed revenue."
While such online retailers as Walmart, Sears, and Barnes & Noble collect sales tax for their online sales, Amazon.com remains one of the few, and most notable, holdouts. Their recent, and highly publicized embrace of bricks-and-mortar retail stores for the Kindle throws into high relief the company’s continued cynicism and obdurate self-interest in refusing to collect and remit the sales tax due on their online sales.
The time has come for state governments to stand up for Main Street retailers and local communities by ensuring that there is in-state sales tax equity. As the Times editorial noted: "One way or another, it seems inevitable all online retailers will collect sales taxes. The only question is when."