Amazon’s New Sales-Tax Strategy: No More Mr. White Knight

Written by Frank Hayes
February 1st, 2012

Amazon, which last year was spending millions of dollars to fight online sales taxes, is now throwing its E-Commerce competitors under the sales-tax bus. Last week, Amazon sent E-mail notices to South Carolina customers, reminding them that they owe sales tax on Amazon purchases—but without Amazon actually collecting tax when a sale is made, thereby hiking the price a customer pays.

That means Amazon gets to build South Carolina distribution centers and enjoy a five-year holiday from having to collect sales tax—while, eBay and even Wal-Mart become the new big targets in the crosshairs of state tax collectors.

The E-tail strategy of letting Amazon lead the charge and take the arrows has turned around. Now Amazon is setting the standards—and they’re standards that benefit Amazon while they may hobble its online competitors.

Case in point: the messages Amazon sent to its South Carolina customers. Under the deal Amazon cut with the state government, Amazon has informed all customers how much they spent with Amazon during 2011 and told those customers they might owe sales tax (technically, it’s called “use tax” when the retailer is out of state and doesn’t collect it) that should be paid on their state income tax form.

But Amazon also gets to tell customers it’s not giving the state their names or how much they spent. That lets Amazon paint itself as a defender of customer privacy (and also, by definition, hints that customers are not likely to get caught if they don’t pay). See, Amazon can imply, we’re not the ones asking you to pay a second time for things you bought months ago. It’s not our fault, and it’s up to you to do—well, whatever you need to do.

Amazon has worn the mantle of privacy defender before, when North Carolina was demanding information on Amazon customer purchases. That ended up in federal court, with a judge’s ultimate decision that didn’t actually protect customers from having their names and total Amazon purchases from being sent to the state. But it sounded great when Amazon announced its victory.

That’s not the worst of it for Amazon’s competitors. If Amazon is sending out those letters in South Carolina, how long will it be before the state demands that Overstock, eBay and other online retailers do the same thing? Remember, Amazon cut a deal to make this happen: In exchange for sending those letters, Amazon gets to build distribution centers in the state (DCs that it wanted to build anyway) without collecting sales tax for five years. Amazon has also had months to tweak its systems so that sending out those use-tax messages is a trivial process.

Amazon got something for its trouble. Every other E-tailer will get the expense without the benefit.


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