Why Amazon is Wrong About Sales Taxes

If you're an Amazon Associate you get a very small stipend whenever a visiter to your site clicks on a link you provide to merchandise on Amazon's site and makes a purchase. If you are a California resident you are not an Amazon Associate, at least you haven't been since Wednesday when Amazon severed ties with all of it's California based associates.  The email that they sent out announcing this irritated me to no end. However the source of my irritation has little to do with income. Yes, I'll will be losing a little, but certainly nothing that will make a difference in my standard of living and this frees me up link to other sites I support.

What irritates me is the self-righteous tone of the email.  This idea that Gov. Jerry Brown and California State legislators are passing a new Big-Box-Store-championed tax law specifically because they "...seek to harm the affiliate advertising programs of their competitors," isn't just misleading, it's a false statement.

Obviously what California is seeking is a way out of a huge fiscal hole that we've dug ourselves into. But the only one who wants Amazon to pull the rug out from under Californian Amazon affiliates is Amazon.  I do understand Amazon's need to utilize competitive pricing. Their ability to underprice everyone is the single most important aspect of their business strategy.  But California legislators (as flawed as they are) are not imposing a new tax on anyone.

See, the law, as it is now, is that only businesses who have a physical presence in California have to charge California sales tax (7.5%). If an online business doesn't have a physical presence in CA Californian buyers are required to declare any item we've purchased online without sales tax. That way we can pay the sales tax we didn't pay at point of purchase when we pay our other quarterly or yearly taxes (no one does this). Now California has decided that Amazon affiliates based in California represent a physical presence and therefore Amazon must tack on the CA sales tax for any Californians who purchase something through their site. The question of whether or not an affiliate represents a physical presence for an online retailer is debatable but this isn't a question of whether or not Californians should pay tax on items bought online. The question is if the collection of those existing taxes should be made possible. If Amazon is the one to collect the tax upfront it's collectable, if it's up to individual citizens to keep track of every online purchase and pay one big lump sum of sales tax at the end of the year it's not.

Furthermore, Amazon could collect the sales tax on California purchases (as the majority of their online counterparts do) and still have more competitive prices than anyone else.  Last week, On Killer Fiction I blogged about several beauty products I purchased, many of which I bought through Amazon.  The eye cream I got, Neocutis Lumiere, normally sells for $95. But it is shipped and sold through Amazon for $51.22. If they added 7.5% sales tax to that price it would bring it up to $55.07. That's still a significantly lower price than any other online or brick and mortar retailer is offering. Another example: My books are generally sold for $13.95.  Amazon sells them for $11.16. If they charged CA sales tax they'd have to add 84 cents onto that price.  Granted it would take away some of their price advantage on the Barnes & Noble (and B&N always charges sales tax) but the pre-tax price of my books on B&N was already $11.18 so Amazon never had a significant price advantage there to begin with. And if someone were to buy three of my books on Amazon they'd get free shipping. B&N will give you free shipping too but only if you pay them a yearly membership fee. So boom, there's your price advantage, Amazon.

In other words, charging sales tax may level the playing field slightly more than it currently is but the playing field still won't even be close to being level. As always, it will be at a very steep tilt with the advantage going to Amazon.

Don't get me wrong, I'm not an Amazon basher. Independent bookstores and publishers have been hating on Amazon for years. But while Amazon may have contributed to the decline in the physical presence of independent bookstores (and to be fair most of the blame for that goes to B&N and Borders) the independents that did survive are better due to the competition.  I know a lot of people will take issue with that but I don't think that Indie Bound (the excellent website that allows you to order books online from independent book sellers) or independent book-seller-extrodinaire Powell's would have such strong online presences if they didn't know they were up against Amazon. I don't think reader reviews would be posted on booksellers' websites if Amazon hadn't started that trend. And I don't think so many successful published authors would be self-publishing through Amazon if the publishing industry had a better business model. So as a whole I applaud Amazon for pushing book buying and online retailing into the 21st century. I have bought many items from them in the past and I have no doubt that I'll be buy many more from them in the future.

But when it comes to charging sales tax? I'm sorry but their arguments just aren't as compelling as they seem to think they are.

Kyra Davis
Author of
The Sophie Katz Series
And
So Much For My Happy Ending