Taxation over the internet: The doom of Amazon?

St-Louis

St-Louis

Many members of Congress signed a bill titled, “Marketplace Fairness Act of 2013,” which, ironic name aside, could cause problems for online sellers far and wide. Online sales have been a bastion for companies, particularly start-ups and other small businesses to gain a competitive advantage over brick-and-mortar stores. While this may be the death toll of many an online retailer, there will be none more profoundly affected by the implementation of such a law as Amazon.com, Inc.

Amazon, the online mega-retailer started by Jeff Bezos in 1994, has thrived because consumers are able to receive their products faster and cheaper—and a big reason those prices are lower is because there is no sales tax. Certainly, tacking on 7% to most purchases will not be the deciding factor to most people—a couple dollars here and there can be missed by most. The difference is made on the big-ticket items such as televisions, sound systems, and furniture. When consumers are forking over $1,300 for the latest HDTV, they do not want to add to that fun by paying an extra $91 in taxes. Ergo the downfall of Media Play, Circuit City, and soon to be Best Buy.

Currently, states are not allowed to force online sellers to collect sales tax, although online sellers can voluntarily do so (that is, if they want to commit economic suicide). The only way states can collect a sales tax is if the business has a brick-and-mortar presence of some type in the actual state (e.g. a nexus or outlet store). Most consumers in the state of New Jersey are well aware of this since they are frequently the unlucky ones who have to pay this sales tax since the Garden State is a hotbed for firms to incorporate.

This bill has bipartisan support, which is a rarity when it comes to anything in the economic-business sphere of politics. Many argue this type of change is long over-due and has given online sellers a huge unfair advantage, especially the giant retailer Amazon. John Molloy, a finance professor at the University of Minnesota’s Carlson School of Management agrees that it is time for the sales tax laws to affect all sellers equals. “You know, back in the day when businesses were just starting online, it was nice for them to have the little of boost. But now, it doesn’t seem fair to the Walmarts and Targets for Amazon to not have to pay [sales tax].”

If the bill was passed, 24 states would be able to begin collecting sales tax immediately because they are full members of the Streamlined Sales Tax Agreement.

Meanwhile, Amazon executives are sweating bullets. While this would not decimate their business strategy, it would likely hamper their growth and put a damper on their diametric dominance. This bill introduces questions of what it means to be fair in a marketplace where every chance for beating the market means the government will attempt to snatch it away.

 

By: Aaron Overfors

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