Monday, July 25, 2011

Amazon's Next Quarterly Earnings - Will Tax Collection Requirements In California Impact It's Earnings?

I'm a simple person when it comes to commerce taxes and whatnots.  So, when California, my home state asked for taxes to be collected by out-of-state online retailers, to me it made sense.  For too long, many residents, myself included, buy from Amazon because it was not only cheaper at some brick-and-mortar stores, you did not have to pay taxes upfront

Well, there is sales taxes on your online purchases which you're supposed to send to the state yourself during the course of the year or during tax filing times.  Billions of dollars of taxes were lost over the course of the last 12 to 13 years.  

I'm not here to debate that issue.  I'm wondering about the tax issues as it relates to Amazon's earnings.  California itself is the 9th biggest economy in the world even as we struggle through our own recession and employment problems but we continue constitute a large percentage of Amazon's online market.

Now for many online buyers, there may be no reason to buy from Amazon if they are forced to automatically pay the sales taxes.  They can go to local and home-grown retailers like that could offer similar prices and, since the fulfillment centers are in California, we could also get our goods faster.  Or they can just go with local retailers' online sites like Costco, Target, and Walmart that often ship to the store for pick-up.  This is an option for Best Buy online purchases.  I reckon that those retailers could get a piece of Amazon's revenue should the affiliate embargo continues.  

At the end of the day, it all comes down to pricing as smart consumers continue to shop for the best prices around.  But I also expect a push by local retailers to fill any short-term gaps created by Amazon's exit.  

In the coming election cycle, Amazon is trying to put the issue to the voters.  Left of center Californians.  And they run the risk of permanently damaging relations with voters and the government.  And that could have a long-term impact on its ability to profit from California  

Note: I totally get the other side of the tax revenue issue as well.  Hundreds if not thousands of companies will be moving their operations to one situated out of California.  Just how this will play out is anyone's guess.  

Another Note:  I think there could have been some compromises that be worked out for a transitional period.  Amazon and etailers outside of California has had an advantage for years because they did not  have to collect taxes from Californians.  And they could also fold that into the pockets of shareholders and be able to pay affiliates.

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