With the Internet Sales Tax, Amazon Looks to Oust Competition

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Without question, Amazon is the king of online retail. Amazon sold more than 26.5 million items in 2012, and on their busiest day (Cyber Monday), they sold roughly 306 items per second. Amazon Prime reportedly has over 10 million subscribers and the hope is that they will achieve 25 million subscribers by 2017. In 2011 and 2012, customers rated Amazon the #1 online shopping experience. In all, Amazon earned $61.09 billion in revenue last year. This dominant performance in online retail stems from Amazon's superior services and innovation.

In other words, Amazon needs no help in shoring up its "best in show" award for online retail. For that matter, it needs no help in being recognized as one of the world's most reputable companies. That's why their support for the ironically named Marketplace Fairness Act to punish their competitors is terribly frustrating.

The Marketplace Fairness Act claims that state governments lose tax money when individuals purchase items online. Instead of going to their local Wal-Mart or Target and making a purchase subject to the local sales tax, customers order products on Amazon or another online retail website and then fail to file their purchase information on their tax returns. For years, Amazon opposed the enforcement of Internet sales tax collection, rightfully arguing that they should not be subject to the expensive costs of tax collection for 9,600 different taxation jurisdictions.

However, Amazon has since switched its position. Amazon supported the Marketplace Fairness Act of 2011 when it was first proposed and is currently supporting the 2013 version. Now that the retailer has a massive edge in online retail, Amazon is fine with enforcing such a complex and expensive tax scheme. Nothing about the proposal has changed for Amazon specifically-they understand that this will be a very costly and burdensome proposal to obey. The difference now for Amazon is that its executives feel confident they can bear the costs while other smaller competitors cannot.

This is a smart bet for Amazon. As noted above, Amazon earned $61.09 billion in revenue last year-the company has the money to develop the processes necessary to comply with this law. But smaller companies most likely will not have that capability. Granted, the law exempts sellers with less than $1 million in sales, but what about the online seller that processes $1.5 million in sales? How can this seller compete with Amazon in a legally compliant way when it has 1/40,000th the resources that Amazon has? It's practically impossible.

Therefore, a number of commentators observe that this bill gives Amazon a greater edge over its competitors-and that's why the online giant is supporting it. Yet unlike the competitive edge gained by productivity and innovation, this competitive edge is one that it is arbitrarily codified into law. Amazon will capture the benefits of the regulation by enjoying less competition from smaller online sellers who will not afford the compliance costs associated with this bill.

It is hypocritical that Amazon, a pinnacle of innovation and customer service, has chosen to embrace a policy that would have harmed Amazon itself in earlier years. Some companies, including Ebay and Etsy, oppose Amazon and the Marketplace Fairness Act, noting that many of their affiliate sellers will be driven out of business. These companies realize, unlike Amazon, that the freedom to earn your way shouldn't be based on whether or not you have the capability to collect taxes for 9,600 different tax jurisdictions. Amazon's success story proves that the company should know better.

Jason Hughey is a Policy Analyst at Americans for Prosperity Foundation.

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