Dean Baker: The Success of Amazon: Welfare as We Should Know It

[marmar]

from Truthout:



The Success of Amazon: Welfare as We Should Know It
By Dean Baker
t r u t h o u t | Perspective

Monday 29 October 2007

Last week, the business press reported Amazon.com had record third-quarter profits as its stock price approached dot.com bubble peaks. We should all be joining in the celebration of Amazon's success because, as taxpayers, we deserve most of the credit.

The business press has written numerous stories explaining how Jeff Bezos, Amazon's founder and CEO, is a truly brilliant businessman. This may well be true, but the secret of his success is not in the futuristic world of the Internet, rather it's in the old-fashioned world of tax avoidance. The key to Amazon's profits is its customers do not have to pay sales taxes on their purchases. In effect, Amazon has been allowed to set itself up as a virtual tax-free shopping zone.

The point here is simple: if someone goes to their neighborhood book store, clothes store, toy store, or even Wal-Mart (Amazon sells just about everything these days), they generally have to pay sales tax on whatever they buy. In some states, the sales tax can be higher than 8 percent, costing a family $16 or more on a $200 purchase

But not at Amazon: operating in the 21st century Internet, Amazon shoppers can purchase their products without paying state sales tax (unless you are unlucky enough to live in one of the four states where Amazon has a physical presence). As a result of a loophole in the law, Amazon is not required to collect sales tax on its sales. Amazon effectively splits this tax bonanza with its customers, giving them an incentive to keep coming back.

To see how important the tax subsidy is, Amazon earned just under $400 million in profits last year, which is approximately equal to 3 percent of its $13 billion in sales. If we assume an average state sales tax of 4 percent on purchases, Amazon's tax subsidy exceeded Amazon's profits.

While Amazon and its customers can both be happy about this situation, this is not a classic win-win story. The sales diverted to Amazon and other Internet retailers came at the expense of old-fashioned brick and mortar retailers who haven't mastered the 21st century skill of tax avoidance. These old-timers are losing business and profits because of Amazon's tax subsidy. .....(more)

The complete piece is at: http://www.truthout.org/docs_2006/102907E.shtml

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1. Devil's Advocate

And that probably deserves extra emphasis on "devil's" ... but if I go to the local store I don't have to pay for shipping. It is too bad that the USPS cannot be the only shipper of internet purchased goods so that the government can generate funds to operate our postal system without continual rate increases by relying on internet purchases.