patrick.net

sales tax isnt a hit to earnings..its a pass through, they collect sales tax dollars, report it to the state govt earch month and 4 times a year- quarterly transfter the collections to the state...

If anything, the funds collected from sales tax provide a small amount of short term interest free indirect borrowing..

I rather agree with you. I think Amazon stock is going to take a major pounding when that comes in. Amazon accounts for 20% of internet shopping. It's not just a big store, it's 1/5th of online shopping bundled into one!

They'll lose their competitive advantage, but they're trying to do major ad ons to their amazon prime service. Which is about $6.50 a month to get better shipping rates, but now you get their cloud service for music, a few ebook rentals, free netflix like streaming of videos and 2day shipping and I've been getting a lot of 1 day shipping from them lately, I think they're working on making things ship faster to make as much come out 1 day as possible so that the delay of buy to touching something is so low that it's faster to buy online (assuming you need a day to free up some time to hit up X store to pick something up).

I'm not sure if their strategy will work, I'll probably think twice about many of my purchases. I get packages almost twice a week from them. So I'm a heavy buyer there. Amazon prime makes it feasible for me, but others, I'm not sure if they're willing to pay the yearly fee.

thomas.wong1986 says

sales tax isnt a hit to earnings..its a pass through

The fact that it passes through makes it a hit to earnings. People are willing to pay so much for a product. A sales tax lowers sales and profit margins. The fact that you consider the tax to be paid by the buyer rather than the seller for your accounting purposes is irrelevant. Both parties are hurt by the sales tax and less business is done.

Furthermore, the sales tax is repressive: it effects the poor and middle class more than the rich. We need luxury taxes, not sales taxes.

Furthermore, there is absolutely no legal justification for states to tax transactions that occur in other states. What service is the state providing to accommodate the transaction?

chanakya4773 says

I was looking at Amazon profit margin in yahoo finance and its 2%.
If the internet sales tax of ~ 8.5 % kicks in this September in CA and then possibly in other states, how can Amazon compete with the likes of Walmarts and targets given that its not sitting on a big profit margin ?

It costs me $3 in gas, another $3 in vehicle maintenance/depreciation, and $40 in time to drive to the nearest Walmart with no allowance for the time it takes me to find what I'm looking for and checkout.

Even with the same tax and price tags Amazon is much less expensive than buying locally.

You have to remember that a huge part of Amazon's profit also comes from its cloud computing service, but I'm not sure how that is taxed.

petomoo says

You have to remember that a huge part of Amazon's profit also comes from its cloud computing service

Amazon losses money on cloud and Kindle ecosystem as they have no leverage like Apple. MP3 is less, Video is free with Prime, and media has leverage to negotiate better terms. That part of the business is building up to gain users so it is a loss. However. it is a strategy that Amazon wants to be in media, as they were originally founded, so they will give it some time.

The profit margin on retailing is higher than overall.

drew_eckhardt says

It costs me $3 in gas, another $3 in vehicle maintenance/depreciation, and $40 in time to drive to the nearest Walmart with no allowance for the time it takes me to find what I'm looking for and checkout.

Time is essentially the reason why Target, Bestbuy and related will never get my business anymore. Nothing beats pizza delivery to your home which doesn't require a tip. I find Amazon's price to be reasonable overall thus I never cared for the absolute cheapest because Amazon is almost always close enough.

Amazon is a huge business and need some connections with various state's anyway and will require fulfillment center closer to their customers. Sales tax collection in California was already a given. Their subsidiary lab126 has 240 positions for products development, software and engineering for the Kindle in Cupertino. They will probably open a fulfillment center around Riverside to cut down on excess freight in, and freight out.

Taking on Apple (and Google) is going to either pay huge or they will fall flat in their face. Losing is a real possibility thus the the threat is not really internet sales tax, but the risk that the investment in Amazon market will fail. At 150-200 a pop, making them a top 10 most expensive company in the S&P, that is not a risk worth taking. Buy DANG instead, it feels just like Amazon 10 years ago, exact same strategy and path.

"If the internet sales tax of ~ 8.5 % kicks in this September in CA and then possibly in other states, how can Amazon compete with the likes of Walmarts and targets given that its not sitting on a big profit margin ?
Current Low profit margin of 2% means that Amazon can only accommodate the sales tax by increasing the final prices on products."

This is exactly why I left California. They are always looking for new revenues (i.e. more taxes), while state and local government workers continue get paid to live an upper-middle class lifestyle.

The tables will turn on amazon.
currently people use local stores as showrooms and then order on Amazon for some items.
Target (and others) are putting pressure on manufactures to come up with specialized products for their stores to diminish the showroom effect. You can't comparison shop in the 'showroom' if they offer a unique SKU.

Dan8267 says

Furthermore, there is absolutely no legal justification for states to tax transactions that occur in other states. What service is the state providing to accommodate the transaction?

Aren't they providing the exact same services as they provide to a retail store?

Retail Store:
1) Roads
2) Police protection
3) Fire protection
4) Public subsidies for utilities at the store
+ all the above are also provided to the buyer - without which the buyer would probably be unable to buy most products (if nothing else, there'd be no job for the buyer)

Online Stores from other states:
1) Roads - exact same roads, for the most part, though now they go from the house to the shipping annex, rather than the store)
2) Police & fire protection for the shipping company, the buyer & his employeers without which there'd be no money to buy with..
3) Any subsidies for the utlities involved apply here as well - I know these are services provided by companies, but are tax dollars subsidizing utilities to some degree?

All that said I wholly agree about sales taxes being regressive. I just think there's no question that without, for instance, California tax dollars keeping roads up, keeping crime down, putting out fires, etc, Amazon would not be able to sell much of anything to Californians. If all businesses were to go online and locate themselves in a low population state, people in other states would have just the same need for police, fire fighters, road maintenance, etc - but much less income. Unless I'm missing something here, which I might be!

Matt.BayArea says

Aren't they providing the exact same services as they provide to a retail store?

Retail Store:
1) Roads
2) Police protection
3) Fire protection
4) Public subsidies for utilities at the store
+ all the above are also provided to the buyer - without which the buyer would probably be unable to buy most products (if nothing else, there'd be no job for the buyer)

Exactly. So, why should I in Florida pay Florida taxes on a purchase I make online from a warehouse in DE or WI? Florida isn't providing the police and fire protection. And shipping is done by the shipping company, not the warehouse or online store. That cost is separate.

The proposed sales taxes are based on the location of the buyer, not the company selling and storing the product. And if it's an electronic product, then even more so.

Sales taxes are odd because not all states even tax the same things. Here in mass we never taxed groceries or clothing...so to tell us to collect another states taxes on that is bad policy.

Getting back to amazon it has to do quite a bit more with the ease of use of the website, reviews and customer service.

If it was just about sales tax then walmart would match it. I've worked in retail and taking 5% or even 10% off isn't much (granted the margin differs by product line). At my last employer I saw the margins. Some is zero to negative..but some others are sky high (40%+)EBGuy says

Target (and others) are putting pressure on manufactures to come up with specialized products for their stores to diminish the showroom effect. You can't comparison shop in the 'showroom' if they offer a unique SKU.

Kinda sorta. The thing is that many companies are OEM's and simply slap a name on a product and have it out the door. In terms of price matching it is a scam because so much of it simply just has to be the same make, model, everything.

I went to some factories in China back in '08. From this I saw Black and Decker made next to Ronco and made next to walmart (same factory). There are no "toned down" models.

Being a heavy saver with a high income, it is clearly in my best interest that the tax burden shift from income to sales. Yet, I have and will always prefer a graduated income tax to a sales tax. The sales tax always hurts the poor and middle class, it creates a black market, and increases the rich-poor gap.

That's why Republicans are always trying to trick people into accepting a national sales tax or "value added tax" to replace the income tax. They try to confuse people into thinking that "simplifying the tax code" requires taxing sales rather than income.

And placing a sales tax on Internet purchases would hurt commerce far more than increasing the capital gains tax would. And it would create a black market in which people purchase from shady online establishments, perhaps out of country.

Dan8267 says

And it would create a black market in which people purchase from shady online establishments, perhaps out of country.

Isnt that what is already happening.. You do purchase forign goods from Amazon and Ebay.

Dan8267 says

Exactly. So, why should I in Florida pay Florida taxes on a purchase I make online from a warehouse in DE or WI? Florida isn't providing the police and fire protection. And shipping is done by the shipping company, not the warehouse or online store. That cost is separate

Your the end user in that state. And the transaction occured between seller and buyer from Florida not from DE or WI, point of purchase.

I think Amazon should have to collect/pay sales taxes if it chooses to sell in CA, or any other store for that matter. Why should it get a huge advantage over mom and pop sellers down the street?

chanakya4773 says

I never understood that either. Is it not unfair ?

One could also ask.. whats the difference between ordering online from Amazon vs ordering from a catalog like JCPennys, Macys, and Sears who did collect sales tax as many did decades past.

Amazon's tax advantage is more than offset by its shipping costs in most cases.

Amazon would probably be fine even if you had to pay sales tax. I live in washington and order plenty from amazon. The convenience of being able to get just about anything ever made delivered in two days or less just can't be compared.

I recommend that everyone checks out amazon prime. I use it to buy almost everything these days.

I buy all kinds of stuff from Amazon.com because I can't find it in the stores locally. Sales tax isn't going to make me buy it locally.

thomas.wong1986 says

Isnt that what is already happening..

Black markets can grow and will under sales taxes.

thomas.wong1986 says

Dan8267 says

Exactly. So, why should I in Florida pay Florida taxes on a purchase I make online from a warehouse in DE or WI? Florida isn't providing the police and fire protection. And shipping is done by the shipping company, not the warehouse or online store. That cost is separate

Your the end user in that state. And the transaction occured between seller and buyer from Florida not from DE or WI, point of purchase.

Then I'll be an end user in another state. It's easy to use an Internet proxy or have an item shipped to another state and then forwarded to your place.

How can Amazon compete? Well lets look at how each one works. Walmart gets items from suppliers and they all go to a central distribution center for each region of the country. The stock is then picked and shipped to Walmart stores as needed, they have to unpack and stock the shelves for consumers to buy them. Walmart has to provide lighting, music, heat (or air conditioning) to make shopping a pleasant experience. They need parking to accommodate customers cars, people to go out and rather up all the shopping carts so customers have carts to put there shopping items in. They also need cashiers to ring up the customers and bags to put the items in.

Amazon on the other hand has regional distribution centers that all the items from there suppliers go to. they don't need shopping music, often the warehouses aren't well heated or air conditioned (there was a story of several warehouses that were so hot in the summer employees were passing out. Employees that couldn't take the heat and pace were fired), there's no shopping carts to gather up or cashiers to ring up purchases. They do have a server farm and IT workers to manage them. All transaction are handled automatically by credit cards. They don't have shopping bags, but do have boxes for shipping. They also do not have 100's of store locations that they have to build, maintain, pay taxes on, etc. parking lots are also much smaller, only need enough spaces for the workers, not all there customers.

So my question is how can Walmart compete with Amazon, there overhead is WAY less.

Physical retail is dead and it should be. It is highly inefficient. And government should not protect those businesses. They are obsolete.

Even virtual retail serves little function, with Amazon being one of the few exceptions. Since most of the products we buy come from large companies, online wholesale makes the most sense. Online retail adds value for consolidating many tiny businesses in one store and that's what Amazon does.

The Internet has eliminated the need for middle men both in the entertainment distribution industry and in the physical goods retail industry. It's assine to protect obsolete business models. We should be building new infrastructure.

chanakya4773 says

well if online retail was so efficient , how come the pre sales tax price of most goods in amazon are same as that of walmarts/target..etc

By efficient, I mean it costs less by far to run an online retail store with warehouses instead of a retail chain in which you have to have a brick-n-mortar store every 20 miles or so. This is obvious and indisputable.

Whether that efficiency is passed on to you the consumer or kept as higher profit margins for the business is an entirely different matter.

Brick-n-mortar stores are a massive waste of city land, parking spaces, and gasoline. And that's not even counting the environmental consequences.

Walmart is the one of the few retail stores that is not in trouble. But, if what you say is true that retail stores in general have the same net profit margins as Amazon and other online stores, then government should definitely not try to boost brick-n-mortar stores. And all those brick-n-mortar stores should stop complaining about the competition. (They certainly do that a lot.)

What constitutes a level playing field? Brick-n-mortar stores can have an online storefront as well.

Is it an uneven playing field if the book store in Philadelphia charges 6% sales tax and the book store across the Delaware river charges 2% sales tax?

The problem with state sales tax is that they inherently create uneven playing fields when dealing with interstate commerce. The only way to make sales tax even is to either eliminate it or nationalize it. And nationalizing it is exactly what the richest 0.1% want because they could easily avoid the sales tax.

chanakya4773 says

why should we have double standards?
I pay CA sales tax if i buy a new car in Oregon and bring to CA. try arguing that.

If I buy anything in New Jersey like groceries, sun tan lotion, a computer, gasoline, etc. and bring it back to Philly, I pay NJ sales tax not Philly sales tax. The location of the store, the site of purchase, is the standard. So, by that logic, the location of the online store should determine what sales tax you pay, not the home address of the customer.

And if the primary address of the customer is what determines which state's sales tax you pay, then I'm using a Delaware PO box as my primary address.

Dan8267 says

If I buy anything in New Jersey like groceries, sun tan lotion, a computer, gasoline, etc. and bring it back to Philly, I pay NJ sales tax not Philly sales tax. The location of the store, the site of purchase, is the standard. So, by that logic, the location of the online store should determine what sales tax you pay, not the home address of the customer.
And if the primary address of the customer is what determines which state's sales tax you pay, then I'm using a Delaware PO box as my primary address.

Under general uniform commercial code ("UCC"), a transaction occurs when title to the good passes or payment received. In a grocery store, title passes when you pay the cashier. For Amazon, title passes when the goods are shipped and received (If the items are lost in translation, it is Amazon's lost). Focusing on the location is irrelvant as the transaction occurs in the state where title passes generally.

In the case of a car, the theory is the vehicle is used where the it is registered. the DMV makes sure the tax is paid.

From WSJ:Piper Jaffray analyst Gene Munster estimated that the company loses at least $11 per customer on its Prime program, which offers unlimited quick shipping to customers who pay a $79 annual fee.
Huh. That doesn't sound too efficient to me. Don't worry, once they put those 'unneeded' bricks and mortar showrooms out of business, I'm sure they'll be less sanguine about subsidizing their Prime customers.

EBGuy says

From WSJ:Piper Jaffray analyst Gene Munster estimated that the company loses at least $11 per customer on its Prime program, which offers unlimited quick shipping to customers who pay a $79 annual fee.

Prime increase sales and drive loyalty, a gateway product. If they are losing a lot, that means they are shipping a lot and making it up somewhere else. Sell more ship more.

You can split prime with four users. One account can ship to four address.

The thing they have to watch out for is selling stuff like dental floss (which we did). If a customer orders 1, they lose money on that transaction.

Dan8267 says

The problem with state sales tax is that they inherently create uneven playing fields when dealing with interstate commerce. The only way to make sales tax even is to either eliminate it or nationalize it. And nationalizing it is exactly what the richest 0.1% want because they could easily avoid the sales tax.

Some ST has layers of taxes for metro services like LA and NYC at say 1% in addition to State, County, and City. Other states have none, so it makes no sense to include one.

Different rates for different needs..
http://www.boe.ca.gov/cgi-bin/rates.cgi?LETTER=A&LIST=CITY

When prime was only for "faster" shipping, I didn't think much of it. "Fine, I'll order $25 and wait the 6 days". However, as I've started ordering more and more, I've found it pretty useful. At $6.50 per month it's not much, and now it's offering up movies like netflix, and online cloud storage, borrowing of some kindle books. All these little side services are definitely creating some loyalty on my part.

But there are several items I wouldn't have purchased from them, had I not gotten that 8% break!

Brick and mortar stores will definitely get a big boost from this, because stores like best buy and walmart deal in impulse buys and associated buys. Buy a tv, how about $150 in cables, a blue ray player and a warranty... walmart never wanted to do online, because they often have loss leaders that people either upgraded to a slightly higher model "oh it's only $4 more for this higher end toaster.. ", or who purchased a dozen other items before leaving. Online, it's hard to get that upsale, and harder to get a dozen little items into your basket. Amazon tries, but doesn't always suceed in getting all those extra items into peoples baskets.

Dan8267 says

Physical retail is dead and it should be. It is highly inefficient. And government should not protect those businesses. They are obsolete.

I certainly wouldn't agree with this. So if your sick and need cough medicine your going to log onto Amazon or another online retailer, order it and wait a week for delivery? I guess you could overnight it, but the cost is high and your still not getting it for at least 12 hours.

There's a lot of things people need that they want NOW! Not in a few days. Physical retailers are not dead and never will be. There may be less of them, they will probably have a smaller selection then online retailers, but they will never cease to exist... unless the technology is developed to instantly deliver products to your customers, think Star Trek transporter.

TechGromit says

I certainly wouldn't agree with this. So if your sick and need cough medicine your going to log onto Amazon or another online retailer, order it and wait a week for delivery?

Yes, things like pharmacies and supermarkets are going to stay in business because you still go to them every week. I'm not so sure about all the mom and pop stores.

With the exception of what I buy at the local supermarket (food, toilet paper, cold medicine), I purchase just about everything online. I don't even go to the mall anymore. And I can't be the only one who shops like this.

It's like land lines. Sure some people will continue to have them, but many like me haven't had a land line since the last millennium.

http://www.youtube.com/embed/GF1b1pf9DRY

But there are several items I wouldn't have purchased from them, had I not gotten that 8% break!
I usually buy online from companies with a California presence. It makes things much easier at tax time as I don't have to save all of those receipts.

TechGromit says

So my question is how can Walmart compete with Amazon, there overhead is WAY less

Certain things aren't viable to ship. I.E. - you aren't going to buy thing that are heavy and relatively inexpensive through the mail. Things like cat litter and soda come to mind, but there is a lot more than that that is best bought locally.

zzyzzx says

Things like cat litter and soda come to mind

It's always about the cat litter with you.

EBGuy says

I usually buy online from companies with a California presence. It makes things much easier at tax time as I don't have to save all of those receipts.

You are likely a distinct MINORITY if you are reporting the tax on your out-of-state purchases. Most people evade this.

Most people evade this.
I'm shocked I tell ya... SHOCKED! So what you're telling me is that this company isn't necessarily more efficient than bricks and mortar stores, but instead has a large customer base because it allows people to easily evade sales tax that is due? Doubly shocked!

Physical retail is absolutely *not* dead.

It just needs to evolve.

Apple is probably the best example of retail done right. It's mostly a show room and customer service center.

Clothing stores will be needed for a long time (at least until we're able to get everything made to measure).