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

February 1st, 2012

Amazon got something for its trouble. Every other E-tailer will get the expense without the benefit—and with Amazon no longer a target, the next tier of online retailers will be the ones getting the attention.

The South Carolina situation isn’t alone. Six months ago, Amazon was pouring money into an initiative to repeal a new online sales-tax law in California, collecting signatures from customers in front of the brick-and-mortar retailers who had pushed for the law. (Aw, it must have been a coincidence. Would Amazon play that type of hardball?)

Then in September 2011, just after Amazon collected far more signatures than it needed to get its repeal measure on the ballot, the E-tail giant cut a political deal: Amazon got another year without doing sales-tax collection in California, it got to restore its canceled California affiliates program, and it got to play the populist anti-tax hero.

The other online retailers who thought Amazon was fighting on their behalf? They get no special consideration (except California-based eBay), and they’ll end up having to go along with whatever Amazon and the tax collectors decide.

Since then, Amazon has continued to cut sales-tax deals that get Amazon off the hook for a few years (until 2016 in South Carolina, 2014 in Indiana and 2013 in California and Tennessee), but also set precedents that aren’t designed to benefit anyone but Amazon. Because Amazon already has the infrastructure in place to collect online sales taxes (the company claims it’s actually collecting the taxes on about half the business it does), whatever Amazon negotiates is really not likely to be optimal for anyone who thought Amazon was E-Commerce’s bodyguard last summer.

But what’s worse for non-tax-collecting E-Commerce retailers, ranging from eBay to Wal-Mart, is that Amazon has been capitulating on sales taxes strategically. The longer Amazon cuts online-tax deals as a proxy for the E-Commerce industry, the better it will get at getting not just warehouses and tax holidays for itself out of the deals but also strategic advantage over other E-tailers.

By waging those expensive, high-profile fights against sales taxes, Amazon gained a public image as a company that fought for lower online prices and lost. Now it gets to cash in. And with Amazon no longer in the sales-tax spotlight, its biggest competitors are about to get the deer-in-the-headlights treatment.

That means eBay will have to argue in dozens of states that even though regular auctioneers have to collect sales taxes, online auctioneer eBay shouldn’t have to. Overstock, L.L. Bean, CDW and Newegg will likely be next in line for tax collectors to go after.

And having been set up by their biggest competitor, it’s not likely to be pretty.


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