Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Amazon Threatened by Sales Tax Dilemma

Companies / Corporate News Mar 11, 2011 - 05:39 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleDavid Zeiler writes: If state legislatures across the country get their way, Inc.'s (Nasdaq: AMZN) 16-year holiday from collecting sales tax will come to an end - with unpleasant consequences for the online retailer.

The U.S. Supreme Court in 1992 established that only retailers with a physical presence (called "nexus") in a given state are required to collect a sales tax from their patrons. But with state budgets being squeezed, more and more legislatures are trying to rope in online retailers - especially Amazon, a company that was specifically engineered to profit from the Supreme Court's ruling.

"[Amazon CEO] Jeff Bezos has built a company strategically around avoiding sales tax. But they're going to have to deal with this," retail analystDavid Strasser, a managing director at Janney Montgomery Scott,told Forbes.

In states that have sales tax (five have none), adding it to the transaction will increase the cost to Amazon's customers anywhere from 3% to over 10%. Although state sales taxes range from 2.9% (Colorado) to 8.25% (California), local jurisdictions can - and often do - add piggyback taxes.

The average sales tax rate in the U.S. reached a new record of 9.64% in 2010, according to a report released last month from Vertex, Inc.

The missing sales tax (most states require customers to calculate and pay a "use tax" on Internet purchases but almost few, if any, actually do) gives Amazon a significant competitive advantage, particularly in states with the highest sales taxes.

Back in 2006 two economists at Massachusetts Institute of Technology found that the avoidance of sales taxes clearly influenced people shopping for computer memory modules. Their report said that in a hypothetical state with the average 5.7% state sales tax, eliminating the levy would decrease online sales by 30%.

That explains why Amazon's response to states threatening to change their policies has been so decisive.

The state of Texas, for instance, sent Amazon a bill last fall for $269 million in past-due sales taxes from 2005-2009, reasoning that an Amazon warehouse in the state qualified as nexus. Amazon responded by shutting the warehouse down and dismissing its 110 employees, citing "an unfavorable regulatory climate."

Since then, Amazon has sought pre-emptive sales tax exemptions before building warehouses, even though many politicians and local businesses have protested.

And just last week the company took on California, which is considering legislation that would use the retailer's affiliates to establish nexus - a strategy New York used successfully in 2008. Affiliates are mostly much smaller companies that sell their wares through Amazon Marketplace, but appear in searches on the Website just like products Amazon sells itself.

The retailer promised to terminate its relationship with all 10,000 of its California affiliates if the pending legislation becomes law.

And it isn't bluffing. Amazon has already cut ties with its affiliates in North Carolina, Rhode Island and Colorado to fend off similar legislation.

However, Amazon's aggressive response could backfire. The Amazon Marketplace accounted for 35% of the company's revenue in the fourth quarter of 2010 and 30% of total units sold. And Amazon gets between 5% and 25% of the revenue from each sale, depending on the margin of the product sold.

Just as importantly, the affiliates allow Amazon to offer a far wider range of products than it otherwise could, making it a more attractive first-stop for online shoppers.

Truth be told, Amazon could easily collect state sales taxes if it were forced to. It already collects sales taxes in about half a dozen states where it has irrefutable physical operations (such as call centers and return processing centers).

And it has few allies among other major online retailers. Of the top ten retailers doing business online - a list that includes Wal-Mart Stores Inc. (NYSE: WMT), Staples Inc. (Nasdaq: SPLS), Dell Inc. (Nasdaq: DELL), and Apple Inc. (Nasdaq: AAPL) -- only Amazon does not routinely collect sales taxes.

Still, what's even more troubling is that this is just one issue that could threaten Amazon's already tight profit margins.

Higher oil prices will make the company's free shipping policies more costly.

The big shipping services like United Parcel Service, Inc. (NYSE: UPS) and FedEx Corporation (NYSE: FDX) that Amazon uses to get that merchandise to its customers add fuel surcharges to their bills - charges they revise monthly. And with the price of oil well over $100 a barrel, those surcharges are headed for a steady climb.

Because its generous free shipping policy is popular with customers, the company may have to eat any rate increases. And that problem is being compounded by its expansion into streaming video.

Last week analyst Brian Pitz of UBS AG (NYSE: UBS) downgraded Amazon to neutral after the retailer announced it would add free video streaming to the perks enjoyed by its Amazon Prime members, who pay $79 a year for unlimited free shipping.

"We note margin is already pressured from continued investment in IT and fulfillment centers," Pitz said in a note to clients. "It now looks likely Amazon will need to invest in 1) acquiring content, 2) distribution deals, and 3) technology."

That's bad news for a company that already has slim profit margins.

Amazon's sales for the fourth quarter of 2010 rose 36%, but its profit increased just 8%. And for the current quarter, the company has projected a decline in operating income.

Source :

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in