March 3, 2011

Consensus is growing that Amazon's tax-free days are numbered

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Given the growing number of stories about the issue lately (like this one), Janet Novak of Forbes magazine asks in her newest column, “Are Amazon.com‘s Days Of Tax Free Selling Numbered?” She puts it even more bluntly in her lede: “Are Amazon.com’s days as a haven for sales-tax shirking shoppers numbered?”

The answer to the question in both versions is yes, says Novak. In an excellent and in-depth overview of the case, she notes that while Amazon was founded on the idea of having an unfair advantage over brick and mortar stores who have to pay tax, and while it has successfully dodged paying taxes for “16 glorious years,” things have changed. Now, she observes, “the battle has entered a new stage as Amazon builds warehouse/fulfillment centers in more locations, states grow hungrier for revenue, and a rising sales tax rate (it now averages 9.64% nationwide) puts retailers who do collect tax at an ever bigger disadvantage.”

The company’s “hardball tactics” of dropping affiliates and closing distribution centers is starting to not work, she says, even as the company needs more and more of those warehouses. Meanwhile, more and more states are adopting “Amazon laws,” and the number of legal battles Amazon faces is rising. “Even if it wins some court battles, Amazon could well lose the public opinion (and, in turn, the political) war.”

And Novak is not the only one who thinks so. Retail analyst David Strasser of Janney Montgomery Scott, tells her “There’s a lot of momentum building. Jeff Bezos has built a company strategically around avoiding sales tax. But they’re going to have to deal with this.” And, he says, the company’s recent thuggish tantrums in Texas and Tennessee (see this earlier Moby story) only strengthen the consensus. “I think Amazon is starting to overplay their hand with what they’re doing in Texas and Tennessee. I’m not an advocate for bricks and mortar retailers. But Amazon is gaming the system.”

In the end, Novak says, it could come back to popular opinion. She notes the rising number of major newspapers editorializing against the company (as did earlier MobyLives reports, such as this one). She points in particular to this editorial from the Fort Worth Star Telegram headlined “Texas Can’t Be Bullied By Amazon.com.” It reads, in part,

Bye-bye, Amazon. Texans love you, and they love the 119 jobs you brought here for a while. Come back when you can stay longer and play by the rules. Don’t let the door hit you in the behind on your way out.

Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House.

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