Why Amazon Should Stop Worrying and Learn to Love Sales Tax
In a pitched battle between Amazon (AMZN) and the state of California over sales tax, the retailer and the legislature finally compromised. Amazon won't push a public referendum to block out-of-state retailers from having to collect income tax if the company can postpone collecting sales tax in the state for a year.
It's just part of the sales tax avoidance that Amazon has pursued for years. The company bets that Congress will address the issue in a way more to its liking. And if Congress doesn't -- hey, CEO Jeff Bezos can always crank up the campaign again. But the degree of desperation that Amazon shows regarding sales tax has to make you wonder whether there isn't something fundamentally off in its merchandising strategy.
Yes, Amazon sells a lot. It's a top retailer and has sophisticated processes and tools for getting people to buy more. Yet it's apparently scared to death of having to collect sales tax, which is why it fights the issue so hard. What Amazon doesn't want to lose is that price advantage it has over brick-and-mortar outfits.
Amazon's unfair edge
But that itself is the problem. It's fine to be a discounter. Those in that business use every edge they can, whether getting custom smaller product packages so they can shave pennies by offering less, leveraging loss leaders, or increasing products on less visible items to bolster average margins. One of Amazon's strategies is to avoid sales tax to get a perceived advantage over local stores.
And yet, a pure discount strategy is a tough business strategy. All that ultimately counts is how low the customer perceives your prices to be. That means customer loyalty is low -- which doesn't sound at all like Amazon. The company has focused on customer service, rapid delivery, high item availability, wide selection, and smart personal merchandising to keep customers returning.
So maybe management's reaction to collecting tax has become a long-term mistake. It smells of desperation, creates a lot of negative PR among consumers already angry at corporations, and is probably unnecessary. Amazon should do as it's always done and find new ways to compete and beat its competition. Particularly as, in the long run, a bad economy will drive states to insist on the company playing ball.
Related:
- Amazon Won't Stop Evading Sales Tax, No Matter How Much It Hurts Itself
- Twitter and Zynga Grow Up -- and Now Want Tax Dodges and Keys to the Car
- E-Tailers vs. the States: The Sales Tax Man Cometh
- How Google Hides Its Profits From the Tax Man
Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.
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