Amazon Continues Ducking Tax, Now Recruiting Brands to Sell "Direct"
Bloomberg reports that Amazon is recruiting brands to sell "direct" to consumers.
Amazon.com Inc. has invited some of the world’s biggest brands to its Seattle headquarters in an audacious bid to persuade them that it’s time to start shipping products directly to online shoppers and bypass chains like Wal-Mart, Target and Costco.
Executives from General Mills, Mondelez and other packaged goods makers will attend the three-day gathering in May, Bloomberg has learned. Attendees will tour an Amazon fulfillment center and hear a presentation from Worldwide Consumer chief Jeff Wilke, who reports directly to Jeff Bezos.
Amazon is looking to upend relationships between brands and brick-and-mortar stores that for decades have determined how popular products are designed, packaged and shipped. If Amazon succeeds, big brands will think less about creating products that stand out in a Wal-Mart Stores Inc. aisle. Instead, they’ll focus on designing products that can be shipped quickly to customers’ doorsteps. Brands have been experimenting with such changes, so the Seattle event may well resonate.
A lot of sites are covering this story from the viewpoint that Amazon is selling more and more material, with the implication that Amazon is a giant.
But Amazon is still only a fraction of the size of Walmart’s size, and in any case the bigger story here is the tax implications.
When everyone was reporting a couple weeks back that Amazon was going to collect sales tax in 45 states, I pointed out that Amazon was still doing everything they could to avoid collecting sales tax. Oh, Amazon was collecting sales tax on some transactions, but was also avoiding it on others by getting 3rd-party sellers to sell through Amazon’s site.
Even though Amazon is handling all parts of the transaction, it doesn’t collect sales tax when it is technically not the seller, thus giving it the tax advantage it has always had over brick-and-mortar retailers.
That’s going to be a huge story a couple years down the line when everyone notices that Amazon has found another tax loophole.
So when the NY Times' David Streitfeld decides to whack Amazon on this point in a couple years, just remember I pointed it out first.
image by Alvy
Scott Lewis April 5, 2017 um 1:21 pm
Not sure this is done to duck sales tax. Third party sellers charge tax when they operate in the state they are shipping to. In the case of Walmart, this would mean pretty much sales tax would be collected on everything they might sell through an Amazon.com. From Amazon’s site:
"Amazon.com has teamed with many sellers. For sales within the U.S., Amazon.com may calculate taxes on the sellers' behalf in accordance with their instructions. These instructions vary depending on the tax laws in each state.
Tax information for these sellers can usually be found in the seller’s Shipping and Tax Information section."
Unless I’m completely misreading that statement and completely misunderstanding current sales tax rules, it pretty much shifts who has to forward the tax money to the state(s), not avoid it being collected in the first place.
Avoiding it in the first place would be, in an extreme example, Amazon forming or recruiting a shell company to sell widgets that are very popular, and setting up a warehouse in a state that’s very unpopulous, allowing them to ship to 49 states tax free. Then one could get even dirtier and recruit a new company to put a warehouse somewhere else, to ship to that last state tax free.
That’s why when you see a Product on Amazon, sometimes there’s multiple sellers, and some offer it tax free and others don’t. If you buy non-Amazon (but through Amazon) and you live in Wyoming, don’t pick the third party whose postal address is Wyoming.
Ian April 5, 2017 um 10:12 pm
Actually, seeing that the vendor is in the province I am from would be a selling point for me. I’m not overly worried about having to pay taxes. I’d rather get my product quickly.
What I really hate is when a vendor says that the product ships from my province, and then I find that they are shipping from out of the country. There is just so much more opportunity for the package to be delayed or go missing. In this regard, I have had several packages which have never showed up. Two from Hong Kong and one from the US. I did get money back when I contacted the vendors. But I rather wonder if they ever sent the product. Part of me thinks that maybe they were just banking on the possibility that I might just let the matter slip. Too much hassle to ask for a refund for a paltry amount.
Syn April 10, 2017 um 5:26 pm
Yep, 3rd party sellers set up if they want tax collected. Usually its for their home state and sometimes they still don’t have it collected, which means at end year, they have to pay it from their profits. With sales stretched across all states, you probably don’t end up with many from your home state.