Jun
02
2012

#rsrh Chris Christie joins Amazon.com in supporting the Marketplace Fairness Act.

I see that Hot Air is reporting on at least the first half of this – essentially, that Chris Christie has come out in support of the Marketplace Fairness Act (MFA), a law that would set up federal guidelines for collecting sales tax online – but based on the comments there I’m not sure if enough folks really understand the situation here wrt Amazon.com.  It boils down to this: contrary to popular belief, Amazon.com does not oppose the MFA.  It in fact supports it.  This is ostensibly because the MFA promises to standardize sales tax collection methods… but it’s mostly because Amazon.com’s business model actually is largely reliant on third-party vendors.

Seriously.  According to this site 40% of Amazon’s worldwide transactions are actually third-party merchandise sold via Amazon (and subject to a set of transaction fees).  If the FMA passes then all of those companies based in the USA will now be liable for collecting sales tax, which will indeed be a hassle… unless Amazon.com comes to them and says “We will handle that for you, at the time of purchase.  For a fee equalling 2.9% of the taxes that we will be collecting on your behalf.” Which is precisely what Amazon.com announced that it was going to do.

Let’s give a specific example.  Assuming a business generates $10,000 a month via Amazon.com sales; also assume that the local state tax rate is 8%.  That business will thus have a choice: either they can collect the $800/month of sales taxes (10,000 X .08 = 800) themselves, or they can pay Amazon.com $23.20 in fees (800 X .029 = 23.2) and Amazon will do it for them.  This is a good deal for the company; and, in the absence of the FMA, it was not a good deal for Amazon when dealing with vendors below a certain level of monthly income.  But now that everybody will be forced to collect sales tax on online purchases, all of those independent vendors will be faced with a choice: raise their prices to reflect said tax, or fork over the 2.9% processing fee.  Most will take the later option.  Seeking Alpha estimates that this could all end up representing additional revenues of $116 million for Amazon.  Per year.  And it’s hard to argue with the numbers.

Make no mistake, applying state sales taxes to online purchases will result in less economic activity online: after all, if you want to see less of an activity, you tax it.  But I find it mildly entertaining that a lot of folks (mostly Democrats) who don’t agree with that commonsense observation are also firmly in the anti-Amazon camp; and I also find it mildly entertaining that at least some of those folks think that enacting mandatory online state tax collection will result in a net negative for Amazon.com.  Reality is, when you have an economy of scale advantage that’s the size of Amazon’s, it’s often going to be hard to avoid making money from a rules change…

Moe Lane

Full disclosure: I am an Amazon.com Associate for Maryland.

1 Comment

  • Neil Stevens says:

    The clear split here is that GOP governors support the Constitutional option to apply existing taxes without raising taxes or creating new taxes in state.

    Dem governors keep trying to pass their own taxes (CA, IL in particular).

RSS feed for comments on this post.


Site by Neil Stevens | Theme by TheBuckmaker.com