Amazon Sales Tax – Why Now And Can You Avoid It?

Avoid amazon sales tax

What’s Behind Amazon’s Decision to Collect Sales Tax?

Amazon has been in a battle for some time with the government’s decision to require online retailers like them to charge its customers sales tax.  As one can imagine, online retail companies like Amazon have benefited immensely over brick and mortar stores like Wal-Mart, Target, Best-Buy etc. by not charging state sales tax.

Amazon benefits especially on items that are extremely competitive or items with little profit margin.  They fought the requirement until recently when they began to collect the sales tax revenue.  In essence, the decision ends the company’s holdout in a reversal of its historical stance.

Understanding Amazon Sales Tax Collection

To fully understand Amazon sales tax and why they seem to have reversed course we need to look at what charging sales tax will require.  Amazon has the infrastructure, employees, and ability to charge its customers the sales tax as it will simply be one more additional cost of the goods they sell.  It will not help their bottom line at all directly since the sales tax will be revenue neutral (i.e money in equals money going out to the government).  Amazon can still afford to comply with the requirement. It will set up separate bank accounts for the sales tax funds to be held in with reporting and payments to the government likely on a monthly basis.

Does Amazon Sales Tax Make Smaller Businesses More Competitive?

Other online retailers such as small businesses on Ebay for example may find themselves struggling to meet the requirements of collecting and paying sales tax.  Some may even decide to forego such a burden because of potential penalties for reporting errors.

What does this do…you got it…it decreases competition in the marketplace.

Compare Ebay vs Amazon sales tax

Will Amazon sales tax help or hurt competition with Ebay?

Remember Amazon and Ebay compete for business on almost innumerable items these days.  If the amount of Ebay sellers decreases, its likelihood of being the best choice on a particular product diminishes as well.  This leaves people to search elsewhere like Amazon.  Amazon also knows one of two things will most likely occur when small companies don’t want to comply with the government bureaucracy of collecting and reporting sales tax.  Either that company will utilize a middleman like Amazon to sell its products allowing Amazon to do the work of collecting the taxes, or in some cases retailers will decide not to offer its products online.  In the first case Amazon sales tax revenue increases.  This helps them justify the infrastructure and employees they already have for their own collections.  In the latter case competition decreases.

Either way Amazon knows that their competition level from small online retailers may decrease with the advent of sales tax collection thereby increasing its market share on a particular set of items.  Watch out small business owner, here comes Amazon!

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