Amazon to Tax Sales in Several States

Amazon agreed to begin taxing sales made in Texas starting in July of this year and is on track to collect sales taxes in 12 states by 2016. This goes against Amazon's adamant policy of making tax-free sales, a feature that has made it popular among online customers wishing to save a little extra money. According to the law, companies do not have to tax sales made in states where they lack a physical presence. However, it is unclear whether strengthening its relations with state governments will cause a consumer backlash and hinder sales.

This move comes as a strategic play on Amazon's part. Adding warehouses in various locations impacted its sales revenue in the first quarter, increasing it by 34%. Currently it faces opposition by states when trying to build additional cost saving shipping warehouses. In exchange for permission to build new facilities in Texas, Amazon agreed to collect taxes.

This trend is expected to continue for the next few years, with Amazon reaching deals with several states. This has the potential to hinder its sales. Right now, Amazon is betting on the idea that additional facilities will increase profits more than a consumer backlash would hurt them. If they are proven to be wrong, they can expect to see struggling years ahead, as they lose the competitive edge that has made them unique in the online retail business. Consumers, if forced to pay taxes either way, may change online retailers, hindering its growth. However, if Amazon's play pays off, they may see increased efficiencies, better relations with states, and more growth.

-Smit Purohit

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