AMAZON, which became America’s biggest internet retailer by selling things more cheaply than anyone else, used to go to great lengths to avoid collecting sales tax from its customers. It issued a map showing employees which states to avoid lest they give the authorities a target for enforcement (some of the biggest states were coded red). In 2011 it shut down a warehouse in Texas after the state’s government demanded $270m in back taxes.
The taxmen are now catching up. On May 6th the Senate is expected to approve a bill requiring internet merchants to collect sales tax due in other states. The House of Representatives may follow. Politicians are heeding howls from bricks-and-mortar retailers that current law gives Amazon and its kind an unfair advantage. State governments reckon that tax avoidance by online retailers costs them roughly $11 billion a year. If the Marketplace Fairness Act passes, states will get some extra cash. Yet Amazon is unruffled.
The Seattle-based super-merchant is already collecting tax in some big states, including California, Pennsylvania and Texas, and is no longer fighting a national regime. Best Buy, an electronics retailer that has suffered much from Amazon’s onslaught, says its sales rose by 4-6% in states where Amazon started collecting tax. But there will be no let-up for old-school retailers. “Closing the loophole won’t level the playing field,” says Sucharita Mulpuru of Forrester, a research firm. Amazon’s retreat on taxes signals a redoubling of its logistics offensive, thumping rivals even harder.
When it comes to putting goods into shoppers’ impatient hands, traditional retailers still have an edge. Customers of Walmart, America’s biggest retailer, can order online and pick up purchases in stores. Macy’s, a department-store chain, plans to fulfil online orders from 500 shops (rather than warehouses) this year, which will let it offer same-day delivery to customers’ homes. But Amazon is catching up. In ten American cities it offers same-day delivery on some items. Lockers in convenience stores let customers pick up Amazon packages rather than waiting for them at home.
In its early days, when price trumped speed, Amazon built huge warehouses far from most customers (and tax collectors). Now that it has caved in on tax “it can optimise distribution logistics completely,” says Ken Sena of Evercore, an investment bank. The idea is to build automated distribution hubs closer to population centres, making same-day delivery commonplace. Amazon’s plans for the next two years include warehouses in California, Texas and New Jersey, according to MWPVL, a logistics consultancy. With 40-50 “fulfillment centres”, it can conquer the country, says Marc Wulfraat of MWPVL.
As service improves and market share grows, Amazon’s fixed costs per order should drop. It is widely expected to acquire its own fleet of delivery trucks, bringing it into direct competition with firms that now carry parcels on its behalf, such as FedEx and UPS.
Not all e-tailers are so upbeat. Blue Nile, which sells diamonds, says in its annual report that having to collect tax could “substantially harm our business”. EBay, Amazon’s smaller rival, feels vulnerable. Like Amazon, it is a platform for other merchants, but its partners are smaller than Amazon’s, says Mr Sena. Small firms will find it hard to comply with America’s myriad local rules. The Tax Foundation, a think-tank, counts 9,646 separate American jurisdictions that levy sales tax.
EBay has blasted out e-mails to customers and merchants urging resistance. Forcing retailers to collect tax from customers will make it “harder for small businesses to grow into big businesses,” says Brian Bieron, the company’s top lobbyist. Mr Sena thinks the blow to eBay itself will be modest. It’s good to be an incumbent.