Mom-and-pop stores may reclaim some business in the wake of a major announcement involving one of the country’s largest online retailers.
Alert: In a move that could lead to significant tax repercussions, Amazon.com began collecting tax on its online sales in Texas on July 1. This prompted an “it’s about time” reaction from state retailers who believe the online giant has enjoyed an unfair advantage for too long.
Amazon now collects sales tax also in Kansas, Kentucky, North Dakota, New York and Washington. Amazon’s agreement with Texas Comptroller Susan Combs to start collecting the 6.25% sales tax follows similar agreements reached in seven other states, Amazon says. Pennsylvania and California will follow in September (see chart below).
“We are thrilled that Amazon will finally have to start collecting,” Valerie Koehler told the Houston Chronicle. “It’s always boggled my mind that they didn’t,” said the owner of Houston’s Blue Willow Bookshop. Amazon sells more than books. Expensive items like electronics have meant “a pretty substantial loss of income for the state,” she said.
In fact, Combs said in April that the state loses an estimated $600 million annually in potential revenue from Internet sales from all sources, not just Amazon. The agreement also calls for Amazon to create at least 2,500 jobs in Texas over the next four years and to make $200 million in capital improvements.
For years, the Seattle-based company has avoided paying sales tax through lawsuits or by closing local business operations. In fact, it closed its distribution center at the Dallas/Fort Worth International Airport in the fall after the company received a $269 million bill covering uncollected sales tax from 2005 to 2009, Reuters reported.
Many would like to see Internet retailers like Amazon collect sales tax in every state, and the pressure on Amazon has increased. The Seattle Times reported that Amazon, under attack in states with huge budget shortfalls, reversed its position and started making deals.
Now, some observers say, Amazon can lower its shipping costs by opening distribution centers throughout the United States.
“Once they’re freed up to do business in more states, their ability to get you things cheaply and quickly will all get better,” said analyst Bryan Gildenberg, of Boston-based Kantar Retail, in The Seattle Times. He suggested this could hurt the traditional retailers. “When they’re able to put distribution centers wherever ... that has the potential to be a game changer,” he said.
While retailers are cheering the state agreements as ones that will level the playing field, Gildenberg doesn’t foresee Amazon suffering much from the new tax obligations.
“All retailers have shoppers who are acutely price sensitive,” he said. “They call them cherry pickers and try to get rid of them. The shoppers most responsive to the changes in sales tax are probably among Amazon’s least profitable shoppers anyway.”
Tip: We will continue to monitor developments in this area.
— Adapted from AccountingWEB, Inc.
Source: CNN Money
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