Amazon has long leveraged the complexity of their IT service with a canny approach to tax. Its undeniably attractive prices, some in part in the advantage it holds over its physical counterparts, in not needing until recently to collect local sales tax from people like you and me when we buy from them. This comes from a 1992 ruling in the Supreme Court that stated that firms were only required to collect taxes from residents if they had a physical presence in that state. This has led to an ongoing cat and mouse struggle between Amazon and a number of states acting on behalf of local businesses to force the company to collect those taxes. Numerous legal challenges, the firing of marketing affiliates in certain states, political campaigns and even shutting down its Dallas distribution center have all been gambits in this high-stakes battle
So What Has Changed?
As one of the earliest internet shopping sites, Amazon made its reputation on its reliability and the stability of its IT security in support of its retail operations. The tax benefits certainly helped it to attract customers, but now the giant has agreed to give them up and start collecting sales taxes.
The reason for this change in approach is that they have adopted a new strategy. Amazon is now banking on the speed of delivery that they can provide. For years, the one advantage that physical retailers had was that of offering an instant delivery: the item was in your hand and you could walk out the door with it. At best, with the right delivery charges, Amazon could get it to you the next day, but it was more likely to take three to five days.
By accepting that they need to levy the sales tax however, Amazon is no longer unable to open up distribution centers across the country. Instead of relying on huge warehouses in low-tax states, they can now begin to offer same-day deliveries.
The Consequences for Retailers
Opinions are divided on how this will impact on the more general world of retail. The darling of online shopping is definitely changing the game by offering same-day deliveries. The ease with which their service allowed people to get goods without leaving their computers made Amazon a poster child for the internet’s early adopters and a sign of things to come. These same enthusiasts see this erosion of the unique selling point of physical retailers as coming not a moment too soon.
On the other hand, surveys are suggesting that the accompanying price hike may be enough to put prospective buyers off. Some see this move as a risky gamble – betting that convenience and speed will be more of a draw than cheaper prices. It’s a gamble that on the face of it seems ill-advised when the economy is so turbulent and people are paying close attention to how far the dollar in their pocket can stretch. It may also be that the logistics of same day delivery prove too complex enought to resort to a seasoned IT service company like iCorps – but only time will tell.