In November ten Senators introduced a new Internet sales tax bill called the “Marketplace Fairness Act” which gives states broad authority to require that online merchants collect and remit state sales taxes in order to level the playing field for online and offline retailers.
Starting February 1, 2012, Amazon will offer to handle the sales tax collection process for its third-party merchants in exchange for 2.9% of the tax collected.
Assuming that current trends continue, by the year 2015, Amazon could be generating $70 billion in revenue through its platform, accounting for 25% of total internet sales of $279 billion. Assuming that 75% of that revenue will be third party generated revenue that is eligible for tax to be collected on it and the tax rate is 7.5%, we’re looking at Amazon earning an additional $114 million that year in tax collection fees. Allowing for some costs to the collection process, we’re still talking about $100 million in profit.
For the hundreds of thousands of small retailers that use Amazon to sell their product, they already must pay a referral fee of between 6% and 25% of the sales price, a variable closing fee per item plus a $0.99 fixed closing fee per item. Can’t all these fees include payment for the tax collection service?
In many cases these third-party sellers are already competing with Amazon when they sell the same product as Amazon does at the same or higher price, and the smaller companies usually must charge for shipping, while Amazon does not charge shipping on items of $25 or more bought directly from Amazon’s inventory.
Having fought sales taxes for online retailers for years, Amazon has done an aboutface as it figured out how to generate another new revenue stream at the expense of smaller retailers, this time online merchants. It seems to make sense to level the playing field with brick and mortar stores, but I worry about the smaller online sellers, who no longer will have the tax advantage (which I don’t think they should have ever had) but now they will be burdened with an almost 3% penalty on the tax they need to collect from the consumer.
Michael Waksbaum
Vice President Analytics
Marketsmith Inc
