Amazon.com Inc. (NASDAQ:AMZN) is going to the Supreme Court over 2008 New York law requiring online retailers to collect sales tax.
At first, the issue seems pretty simple. Amazon doesn’t want to have to collect sales tax, which is why it’s challenging the New York law, right? Not completely. A report from Bloomberg Businessweek broke the issue down. Amazon has actually already agreed to pay sales tax in several states, and CEO Jeff Bezos has come out in support of the Marketplace Fairness Act, which is currently before Congress and would require online retailers to collect sales tax in all states.
So if Amazon supports paying sales tax, why is it going to the Supreme Court to challenge the New York law? Basically, Amazon has a problem with the way the law — which was one of the first requiring online retailers to collect sales tax — goes about making e-commerce businesses pay the taxes, not the end goal of collecting taxes from those businesses.
The law requires retailers with affiliates in the state to pay sales tax, not retailers with physical operations in the state, which means that e-commerce sites can easily get around the law by authorizing their affiliates, Businessweek explained.
Amazon has grown to such a gigantic size, with fulfillment centers in almost every state, that it knows it’s not about to get out of collecting sales tax. It’s much more important to the company that it maintains its reputation of providing the fastest and most reliable shipping available in the e-commerce world, which means building more fulfillment centers around the country, which then means more physical operations in different locations, resulting in collecting and paying sales tax around the country.
Keeping up with growing competition from eBay (NASDAQ:EBAY) and Wal-Mart (NYSE:WMT) in same-day shipping will require that Amazon continue to grow. Amazon’s recently been on a building, hiring, and spending spree for its fulfillment centers — warehouses where orders are packaged and shipped. According to recent data, Amazon only needs to build 12 more fulfillment centers than those already announced to be able to offer same-day shipping to 50 percent of the American population.
What Amazon really wants, according to Businessweek, is a simpler law that requires the same amount of taxes from all online retailers. And though it seems counterintuitive, fighting the New York tax law is a step in that direction.
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