Can Amazon Bargain Its Way Out of Paying Taxes?

Amazon.com's (Nasdaq: AMZN  ) drawn-out battle over state sales taxes rages on.

The e-tailer has upped the ante in its tussle with the state of California by offering to create 7,000 full-time jobs in the state by 2015 in exchange for a temporary reprieve from the state's Internet sales tax until 2014. The company proposed creating jobs by investing in six distribution and fulfillment centers in the state.

For the most part, lawmakers are skeptical. Legislators estimate new tax revenue of $200 million per year that they're not ready to give up so easily. Amazon has already spent around $5.25 million fighting the law. The California Retailers Association, which represents local brick-and-mortar merchants, contends that California has lost 18,000 jobs and $7.1 billion in economic activity in 2010 because of Amazon.

The new law also affects other online retailers like Overstock.com (Nasdaq: OSTK  ) that have affiliate programs. Since having partners that reside in the state sending sales leads to Amazon technically qualifies as a "physical presence" subject to taxation, the company is severing ties with its California affiliates. Some of these much smaller affiliates will feel the brunt of the law much more severely than Amazon, who booked $9.9 billion in revenue last quarter. Overstock also similarly cut out its own affiliates.

I wholeheartedly agree with fellow Fool Cindy Johnson in that Amazon's competitive advantage over traditional retailers like Best Buy (NYSE: BBY  ) and Target (NYSE: TGT  ) transcends just the tax savings. Amazon frequently boasts the lowest prices before taxes even enter the picture. The sales tax advantage is just a nice cherry on top for customers and its presence or absence is unlikely to sway e-shoppers in any meaningful way.

Amazon may feel differently, though, because it's dumping millions of dollars into fighting state governments. For all of you Amazon shoppers out there that save on taxes: Do the taxes make or break your shopping decisions? Share your thoughts in the comments box below.

Fool contributor Evan Niu owns shares of Amazon.com, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Best Buy. Motley Fool newsletter services have recommended buying shares of Best Buy and Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 02, 2011, at 7:31 PM, teeba11 wrote:

    i like not paying taxes, but it is not the reason that I shop online. In fact, I buy things online from retailers that collect taxes (ie, Keurig).

    ultimately, i shop online for the convenience. Sales tax or no, it would not change my habits.

    I guess living in a state with sales tax has me accustomed to it.

  • Report this Comment On September 04, 2011, at 1:23 PM, spectechinvest wrote:

    Just an idea... but could Amazon's new tablet actually be a device not intended to compete directly with the iPad, but actually be a virtual portal into its amazon store. With a user interface that actually acts as having an amazon store sitting on your coffee table so that every time you think of running to the store you just check the amazon tablet store first?

    more thoughts on this expanded here: http://thespeculativetechinvestor.blogspot.com/2011/08/looki...

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