Online retailer appears ready to accept taxes
Saturday was likely an unhappy day for some consumers in California, but it also was probably a day of celebration for state tax collectors and retailers.
It was the first day the giant online store Amazon began including the California sales tax on online purchases made by consumers in that state. Amazon and the state reached an agreement to allow taxation a year ago after a long legal battle over it.
According to the Associated Press, the impending tax day triggered a wave of buying on Amazon from Californians last week for items like expensive big screen TVs, Christmas gifts and even everyday consumer products.
The online retailer, which offers a wide range of products from electronics to books to groceries, has long contested the efforts of states to collect taxes, based on its claim it does not have physical stores in the states, although in some cases it maintains warehouses and shipping centers in them.
It is a battle we are familiar with right here in our own state. There has been growing pressure in Arizona in recent years to force Amazon to collect state sales tax. The company has used the same defense that it does not have retail stores here, although it does have a major distribution presence in Phoenix.
Actually, Arizonans are supposed to voluntarily pay the sales tax out of their pockets, even though Amazon does not collect it, but most do not. The state has also taken legal action to force Amazon to pay past sales taxes, although that remains unresolved. There have been several attempts in the Legislature, supported by retailers, to impose taxes on online purchases.
The motivations for state tax collectors and retailers are clear.
The amount of online purchasing, especially from Amazon, is large and growing. The state sees the prospect of a huge injection of tax revenue if the online retailer starts collecting the taxes.
Retail stores here understandably resent making a big investment in physical stores and collecting required but unpopular sales taxes while Amazon does not have to do so. Even if those retailers also have online operations, they are still at a disadvantage because they must collect sales tax on online purchases. They view the tax issue as leveling the field.
The issue may be more complicated for consumers. Many like having physical stores where they can look at and evaluate goods but then may make the actual purchase online where the price may be lower and they do not need to pay taxes. It can be a big price advantage on bigger items.
The agreements Amazon is reaching with states on taxes and some recent strategic planning it has done indicate it may see the handwriting on the wall when it comes to collecting sales tax.
That is good news for state tax collectors, but it may end up being less so for "brick and mortar" retailers.
Now that the company is seeing tax collection as inevitable, it hopes to switch the incentive for consumers to shop online from the lack of sales tax to quicker delivery of their online purchases.
Amazon already offers fast one day or two day delivery for customers willing to pay for it, but the long-term goal, according to news reports, is to increase the number of distribution centers and warehouses and locate them strategically so there can be same day delivery of products, along with its typically lower prices. Amazon already offers the service in a number of major cities.
Same day delivery might impact "brick and mortar" retailers who currently are uniquely able to satisfy the desire of buyers for instant gratification by picking up items immediately.
There was a disincentive for Amazon to open too many distribution centers out of fear states would claim they were a physical presence and want to start pushing for tax collection. That no longer exists if it voluntarily agrees to collect taxes.
Amazon is already collecting taxes for seven states and it is pending for six others.
The next battlefront could be city sales taxes. If the states are successful, can cities be far behind in their demands? One solution might be revenue sharing, as happens with some other taxes collected by the state but shared with cities.
According to Associated Press, Amazon is lobbying Congress to make the sales tax collection system simpler for online retailers, perhaps by creating one unified rate for all states.
It seems clear that the days of tax-free shipping for Amazon customers, including those in Arizona, are likely coming to an end. We’ll have to wait and see how this all impacts the various stakeholders.