U.S. Markets open in 6 hrs 57 mins

Why Amazon’s State Sales Tax Could Be Good for Customers

The Business Insider
Daily Ticker

Follow The Daily Ticker on Facebook!

Amazon.com (AMZN) stock continues to test new highs hitting $264.11 a share last Friday after releasing its new Kindle Fire HD a week before. On Monday the stock closed at $258.

But the on-line retailer faces fierce competition in the tablet space from Apple (AAPL) and Google (GOOG), despite the fact that CEO Jeff Bezos says the Kindle Fire HD "the best tablet at any price."

Meanwhile, Amazon just began collecting sales tax from its largest U.S. customer-base: residents living in California. The on-line retailer already collects sales tax in six other states, including New York. Many wonder if this new policy will deter customers from shopping at Amazon.

Senior editor Jay Yarow joined The Daily Ticker's Henry blodget in the accompanying video to discuss all of the above.

He tells us why Amazon's sales tax policy could result in a short-term hit to the company's bottom-line, but may payoff down the road for both customers and shareholders.

Business Insider's Jay Yarow

In recent weeks, most of the attention focused on Amazon has been on its new tablets.

And while the Kindle Fire family is certainly a big deal, Amazon is quietly laying the foundation for something that could be a much bigger deal.

Amazon is building new distribution warehouses around the country in locations that are close to major metropolitan regions, like San Francisco and New York City.

[Related: Amazon.com: Coming to a State Near You and Bringing Job Offers]

New York Times, reporter David Streitfield calls these new warehouses a "monumental bet" by Amazon.

It's a "monumental bet" because Amazon will be able to more quickly deliver stuff people order online.

Previously, Amazon didn't put distribution centers in states like California or New York because it didn't want to collect a sales tax on items it sold.

[Related: Inside The World Of Online Retail: What It's Like To Be A Warehouse Worker]

There was a 1992 Supreme Court ruling that said online retailers didn't have to collect sales tax if they didn't have a physical presence in a state. So, if a New Yorker bought something from Seattle-based Amazon, she didn't have to pay a tax. This made the price of Amazon's goods much lower.

The thinking behind the Court decision was that the internet was new and needed a slight advantage to grow, says Streitfield.

[Related: Amazon's New Worker Education Program: Good Business or PR Stunt?]

Amazon has grown into a juggernaut and the last thing it needs a leg up on off-line retailers. Plus, local and state governments need all the money they can get. They passed laws forcing Amazon to start paying taxes.

Initially, Amazon fought these laws. It didn't want to charge a sales tax and lose a pricing advantage.

Eventually it stopped fighting the tax laws because it realized that abiding by the tax law opened a new opportunity. It is now establishing physical presences in more states to make faster delivery possible.

[Related: Amazon to Offer Same-Day Delivery: Will It Change the Way You Shop?]

The opportunity down the road for Amazon is same-day delivery. It now has a warehouse just 85 miles outside of San Francisco. This means that people could eventually put in an Amazon order in the morning and get what they want that afternoon.

This is what makes Jeff Bezos and Amazon so dangerous. It can turn something that seems like a disadvantage into a very strong advantage.

Don't Miss: Jeff Bezos Is The New Steve Jobs

More from The Daily Ticker

Organic Foods Are Worth the Cost: Whole Foods CEO

U.S. Safe-Haven Status Is A Curse: Eurasia Group's David Gordon

2008 Financial Crisis Cost Americans $12.8 Trillion: Report

iPhone 5 Pre-Orders Blow The Doors Off—But Is Apple Losing Its Edge?