Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The End of the World History Stock Market Chart : Big Pattern = Big Move - 26th Jan 21
Stock Market Recent Sector Triggers Suggest Stocks May Enter Rally Phase - 26th Jan 21
3 Top-Performing Tech Stocks for 2021 - 26th Jan 21
5 Tips to Manage Your Debt - 26th Jan 21
Stock Market Intermediate Trend Intact - 25th Jan 21
Precious Metals Could Decline Before their Next Attempt to Rally - 25th Jan 21
Great Ways of Choosing Good CMMS Software for a Business - 25th Jan 21
The Dark Forces behind American Insurrectionists - 25th Jan 21
Economic Stimulus Doesn’t Always Stimulate – Pushing On A String - 25th Jan 21
Can Karcher K7 Pressure Washer Clean a Weed Infested Driveway? Extreme Power Test - 25th Jan 21
Lockdown Sea Shanty Craze - "Drunken Sailor" on the Pirate Falls Crazy Boat Ride - 25th Jan 21
Intel Empire Fights Back with Rocket and Alder Lake! - 24th Jan 21
4 Reasons for Coronavirus 2021 Hope - 24th Jan 21
Apple M1 Chip Another Nail in Intel's Coffin - Top AI Tech Stocks 2021 - 24th Jan 21
Stock Market: Why You Should Prepare for a Jump in Volatility - 24th Jan 21
What’s next for Bitcoin Price – $56k or $16k? - 24th Jan 21
How Does Credit Repair Work? - 24th Jan 21
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Amazon Threatened by Sales Tax Dilemma

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

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleDavid Zeiler writes: If state legislatures across the country get their way, Amazon.com 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 : http://moneymorning.com/2011/03/11/...

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: customerservice@moneymorning.com

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 http://www.MarketOracle.co.uk - 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

6 Critical Money Making Rules