Amazon vs. Trump and South Carolina

Amazon and the issue of sales taxes has been in the news lately.

First, there is a complaint against Amazon filed by the state of South Carolina.  The state government is claiming that Amazon owes the state a large tax bill for uncollected sales taxes.  Amazon is vowing to fight the allegations.

Second, Trump chimed in with one of his tweets.  While Trump is pilloried by the media for supposedly supporting white nationalists, colluding with Russia, etc., the establishment seems to stay rather quiet when Trump is on the side of big government.

Trump said in a tweet: “Amazon is doing great damage to tax paying retailers.  Towns, cities and states throughout the U.S. are being hurt – many jobs being lost!”

We are back to Trump’s protectionism and his overall ignorance of economics.  Trump is making the claim that since not all Amazon products are taxed, it is hurting physical retailers.  He is saying that this is costing jobs.

This is a stupid argument, as it is simply an argument for higher prices.  He could say the same thing about any company that comes in with lower prices, regardless of whether it is because of taxes.  If someone shows up to sell quality new cars for $10,000, then this will hurt sales for the big car companies.  It will mean that jobs will be cut from those car companies.

But Trump has probably never heard of Frederic Bastiat or even Henry Hazlitt.  He does not understand basic economics and that you have to look at the other consequences that are often unseen.

If Americans could all of a sudden pay $10,000 for the same new car that previously cost $30,000, then this would be a huge benefit to the consumer.  Sure, it would cost jobs at the car dealerships.  But now more Americans would have extra disposable money to invest or save or spend elsewhere.  This means it would lead to job creation in other areas where there is consumer demand.  This is called advancement.  This is how we increase our living standards.

The issue with Amazon is really a state issue and should be none of the federal government’s business.  It is true that some retailers sell on Amazon and do not always collect the appropriate sales taxes (according to the state governments).  Of course, this is partially the fault of state governments that make it so difficult to do so.

It is very complicated right now with Amazon sales.  There are many private retailers that sell on Amazon, and they use Amazon to fulfill their orders.  This is called “fulfilled by Amazon”, or FBA.  While the seller can include an add-on sales tax on their products, it is up to each individual seller to remit the sales tax back to each state.

If you live in Texas and you sell a product in Texas, then you are supposed to collect sales tax and remit it back to the Texas state government.  The problem arises when you sell in other states.  For example, if you have a presence in another state, such as an employee, then you are said to have “nexus”.  If you have an employee in California, or if you just go for a weekend to California for a trade show, then you are doing business in California and you are supposed to pay sales taxes on sales to California.

It gets even more complicated with Amazon.  If you live in Texas but you don’t travel anywhere outside of the state or employ anyone outside of the state, you may still have nexus in California and other states.  Amazon has warehouses throughout the country now in order to make good on promises of quick shipping to Amazon Prime members.  Therefore, if your product goes from Texas to an Amazon fulfillment center in California, then you would supposedly owe taxes to the state of California.

It is also a problem that Amazon can move its inventory around.  If you live in Texas and ship your products to a warehouse in Florida, Amazon may relocate your products to other states to spread them around, especially for large inventories.  Therefore, it is difficult for sellers to even know where their products have been and where sales taxes are owed.

It is a total mess.  It is especially messy for sellers.  While I am an advocate of federalism and states’ rights over centralization, I acknowledge that federal legislation could actually help Amazon sellers.  It would make it far simpler in terms of collecting sales taxes.

Many Amazon sellers take their chances in owing taxes, even though it is somewhat risky.  Imagine having to get a tax ID in 20 different states.  It can take several hours to fill out the appropriate forms for each state.  On top of that, some states will charge you fees to register, just so you can have the privilege of remitting more money back to the state government.

Maybe federal legislation will come out of this whole thing, but we know how politics in Washington DC goes.  They will find a way to mess it up.

For consumers, it is becoming harder and harder to buy products with no sales taxes on Amazon.  Much of that benefit is gone.  The big mess right now is for sellers.  If Amazon merchants did not have to go through so much hassle with sales taxes (for those that bother), there is an argument to be made that prices might be lower, as lower costs of doing business could spur more competition.

Amazon selling can be quite lucrative for those who know what they are doing.  As a side note, if you want to learn more about selling on Amazon, there is a great podcast hosted by Scott Voelker.  It is called The Amazing Seller podcast.

In conclusion, Trump is wrong to attack Amazon.  It is actually none of his business, and he is getting the economics wrong.  If you want to place blame here, it should go squarely on the state governments that have made a complete mess of the tax code.  If the state governments made it easy, then Amazon would make it easy.

If only Amazon could limit its warehouses just to Alaska, Delaware, Montana, New Hampshire, and Oregon.  These states have no sales taxes.

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