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.

• Add Amazon.com to My Watchlist.
• Add Target to My Watchlist.
• Add Overstock.com to My Watchlist.
• Add Best Buy to My Watchlist.