The big picture for Amazon

South Carolina hardly rates a mention in this report in the WSJ today (“Amazon Battles States Over Sales Tax“), but I thought some of y’all, your nerves still jangled from the recent battle at the State House, might be interested in this step-back report on what was at stake for Amazon, and how SC fits into the company’s grand strategy. An excerpt:

SEATTLE — Amazon.com Inc., the world’s largest online retailer, hasn’t charged sales tax in most states since its founding in 1994. And it has taken some extreme measures to keep it that way.

Among them: Staff traveling around the U.S. have been required to first consult a company map that shades each state red, yellow or green, said three people who have worked for the retailer. These people said they needed permission from managers or company lawyers before entering “red” states because a worker’s actions might trigger laws that force Amazon to collect taxes in those states.

Such steps to avoid local levies allow Amazon to undercut in-state retailers by the amount they must add in sales tax, which can exceed 8%.

A close examination of Amazon’s corporate practices, based on interviews with more than a dozen former employees and people who have done business with the Seattle company, as well as a review of corporate documents, indicates that the company believes its sales-tax policy is critical to its performance…

37 thoughts on “The big picture for Amazon

  1. bud

    South Carolina was an enabler of this unfair practice. Of course this should be settled at the national level but right now congress is unlikely to do anything worthwhile.

    Reply
  2. Mab

    No fair — us peasants can’t read the whole Amazon article (which sounds a little like communism to me). Or this one either:

    AUGUST 3, 2011
    Mormons Duck Political Duel
    BY JONATHAN WEISMAN

    Would the WSJ mind if you shared? You could just print the articles on a downloadable thingy.

    Reply
  3. Doug Ross

    Try not to be shocked but I think Amazon (and all internet retailers) should pay sales tax but I don’t think the government is smart enough to just make it a simple process. I’d base it on the tax rate/rules of the purchaser’s home state or the shipping address.

    But there’s no chance that the government could do establish something that simple. Like Obamacare, what should take one page would probably expand to hundreds of pages of exceptions. It would also probably take the state of South Carolina at least three years to remove the use tax section from the tax code and the tax forms.

    It’s too bad we have to set the bar so low in our expectations regarding goverment efficiency.

    Reply
  4. Brad

    Government efficiency wouldn’t be at issue. It would be up to the retailer to collect it. It shouldn’t be hard to write the code that assigned a percentage based on the purchaser’s zip code.

    Then the retailer would have to send the tax money to all of the jurisdictions in question, which I suppose is what Amazon doesn’t want to have to do.

    All the governmental entities would have to do is take in the money the way they do from all the bricks-and-mortar businesses.

    So basically, it ought to go super-smoothly, since we’d be relying on the magnificent efficiency of the private sector to make it work. Right?

    By the way, if I’m misunderstanding how it works, based on my zero years as an accountant in retail, I’d love to have someone who DOES know how it works enlighten us.

    Reply
  5. Doug Ross

    But won’t they have to deal with all the other exceptions, exclusions, and stupid rules of each taxing authority?

    Wouldn’t an 85 year old be eligible for the 1% discount that he can get in SC? What about purchases made during tax free weekends like the one coming up?

    The tricky part is figuring out which items are taxed and how much. That’s because governments can’t do anything the easy way.

    Reply
  6. Doug Ross

    As for it going “super smoothly”, that’s a good one.

    As someone who has spent the past 30 years in the software industry, I wouldn’t bet on anything less than two years… I can foresee all sorts of government committees being created to come up with a different set of rules in each state to handle transactions.

    Reply
  7. bud

    Doug’s government bashing is akin to what is happening on TV sitcoms these days with male bashing. The butt of the joke in a married couple is always the husband. Men are just buffoons running around helplessly until their wife comes along to bail them out.

    Reply
  8. Greg Jones

    If you believe sales tax is a legitimate way to fund the government, you really can’t oppose an Amazon (or other distantly located online retailer) sales tax. The state could just easily add it to our state income tax form. That way the buyer is responsible; if you don’t report you’re in violation. They’d never have to research the “voulnteered” number given by 99.9% of taxpayers. Think of how much additional revenue this would bring in.

    Reply
  9. Doug Ross

    @greg

    The “use tax” already exists on the SC tax forms. I would guess it is rarely used. Self reporting taxes owed is the worst option. Are you going to pay Revenue Dept. agents to track down whether someone paid $25 total sales tax in a year?

    Reply
  10. Mark Stewart

    Doug,

    Really? Quite a few retailers already collect sales taxes in every state that has them. And they do it accurately every day. It’s an off the self solution.

    This is just another case of South Carolina playing obstinate; thereby allowing another party to reap “unjust” rewards.

    Funny, too, that on at least on one map we are no longer a “red” state.

    Reply
  11. Tim

    Greg,
    The state tax return already includes the line to add any internet sales taxes. Its called the “Use Tax”. Check the link to see what the DOR says.

    http://www.sctax.org/Tax+Information/Sales+and+Use+Tax/Sales+and+Use+Tax+Web+Page.htm

    However, from previous threads, its pretty clear most folks on either side of this question just ignore it, as does the state’s tax collectors. Its on the level of those old laws that say things like “you can’t spit on a sidewalk after 11am on Sundays.” In otherwords, its the Amazon Discount.

    Reply
  12. Doug Ross

    @Mark

    Do you know how long it took to implement the solution? I don’t think you understand the amount of time that is required for configuring and testing “off the shelf” software… especially when you are integrating it into your current business process. My job for the past six years has been doing just that. I stand by my prediction that it would take two years from the time someone said “you must collect sales taxes from all states” to actually flipping the switch.

    Reply
  13. Greg Jones

    @ Mark and Tim
    I was aware of the use tax. My thought was a box specifically labeled “internet Sales Tax”. If you choose not to put anything in that box, you are legally declaring you did not buy anything online without paying sales tax. This would set up two scenarios: 1. In any audit situation, there is something else they could get you for. Granted the number of audits is small. 2. There are enough honest folks (and thorough accountants) that the tax collected could be a huge windfall.
    You see? No new enforcement costs, but yet a rise in collections. Sounds good to me.

    Reply
  14. bud

    Doug if you’re wrong then wouldn’t that be proof that the free market does a much poorer job of implementing change than does government? Heck, we change things around here that are much more elaborate than what this is about and it doesn’t take 2 years. Seriously that’s a bit overstated don’t you think?

    Reply
  15. Doug Ross

    @bud

    Give me an example equivalent to modifying the business processes of the worlds largest electronic retailer.

    Do you think Amazon would be able to do this without having to coordinate with 50 different government agencies? I’m sure they do new stuff all the time very quickly. It is the government component of the task which will be the nightmare.

    Reply
  16. Doug Ross

    @Bud

    I’ve got a friend who works for the V.A. information systems department locally. He’s told me the horror stories of trying to implement a new system that replaces one written in COBOL back in the 60’s. It’s been going on for a couple years now.

    I did a one year project for the Secretary of State’s office back in the early 2000 timeframe. The one year project would normally take one month in the real world.

    Reply
  17. bud

    Seriously Doug this is getting a bit insulting. The DMV routinely manages an insanely huge database to keep track of millions upon millions of records. I’m sure in big states like CA or TX the tracking is even more daunting. State, local and federal governments routinely work together to collect hundreds of pieces of information about traffic crashes across this nation and provide data to thousands of users. Problems and delays certainly do arise but they are addressed and corrected. Indeed the fine men and women in government work tirelessly to try and make our highways safe and efficient. And yes, much credit should go to the private contractors who perform invaluable services related to the design and construction of those roads. Police agencies all across the state are able to quickly access information about drivers and vehicles that are stopped for routine traffic violations. All these efforts are the result of the labors of folks who earn far less than their cohorts in the private sector. And frankly having worked for a private company part time for five years I’m underwhelmed by the computer system they use.

    Does government have shortcomings? Of course. Are there lazy workers? Absolutely. Is there room for improvement? You betcha. But all in all the men and women of government do a fine job with the resources they are provided. To suggest that private companies are intrinsically superior or more efficient is laughable. Just go to Walmart some time and tell me how efficient their checkout system is. Doesn’t even compare to the SCDMV.

    Reply
  18. martin

    Doug, I don’t know nothing ’bout no computer programming, but why would calculating sales taxes (which I think for internet sales should be the base state sales tax rate; no local additions) for different states be any more complicated than calculating shipping to different locations?

    Reply
  19. Steven Davis

    @Doug – When he gets the VA problem figured out, he might want to contact USC to get the OneCarolina (the IT-equivalent of the Innovista) problem/project resolved.

    Reply
  20. Steven Davis

    bud – you don’t have much experience working with government agencies do you. It takes two years to make minor changes in existing systems much less new systems. Creating one new position takes a minimum 6 months before you can even advertise the position.

    Reply
  21. Tim

    Doug,
    I am not strongly opinionated on either side of this, but other retailers have to collect sales tax all the time, and coordinate with 50 states. Sears, Walmart, KMart, The Gap, Starbucks, etc. And they all have online presences as well, that charge the sales tax. I just went back and looked at my recent Target online purchases (coordinated through Amazon, btw) and the sales tax shows right up. Amazon relies on a very questionable loophole for its ‘discount’, one that its entire business model apparently relies upon. That argument doesn’t wash.

    Reply
  22. Mark Stewart

    I am sure that Amazon could collect sales taxes nationally within one month; although I’m sure you are correct that they would claim it would take 2 years to modify their obsolescent computer systems (ha!).

    This discussion is a prime reason why it’s called “driving innovation”: We demand change and people find a way to make it happen.

    Reply
  23. Doug Ross

    @bud

    Millions of records, huh? Wow.. I think a Microsoft Access database on a five year old PC could handle that.

    The biggest database I personally created tracked the daily sales and money orders at 40,000 US Post Offices for seven years. I probably loaded more data in one day than the DMV loads in a year.

    I’ve only spent the past 30 years as a programmer/consultant working around the country for all sorts of companies and government agencies. I guess I don’t know what I’m talking about. One government agency once paid my former company $250 an hour for a month for me to sit around in case another government contractor who was making millions writing lousy software needed help.

    Reply
  24. Doug Ross

    And what none of you seem to understand is that writing the software is the smallest part of the equation. It’s integrating it with the existing system and testing it that takes the time. You think Amazon wants ANY problems with collecting sales taxes that will make customers unhappy?

    Reply
  25. Doug Ross

    @mark

    How much software development have you done?

    I’d like to see you put out a request for bids for implementing the sales tax for a multi-billion dollar online retailer. Your one month guess would be considered to be an attempt at being funny.

    Think it through.. aside from the purely technical code changes (which involves unit testing, performance testing, regression testing, user acceptance testing), Amazon would have to do things like internal documentation, changes to financial systems to handle the capture and transmission of the sales tax funds to 50 states (this would mean creating new general ledger and accounts payable processes), additional processes for keeping the software updated to handled tax code changes, training support staff to handle questions from customers about the sales tax…

    One month. Sure.

    Reply
  26. Doug Ross

    @mark

    I think I should be able to rent a building from your company by signing an index card with the monthly rate on it. We both sign it and we’re done. It’s not any harder than that is it?

    Reply
  27. bud

    Doug, the problem I have with your position is that it’s so completely black and white. Any evidence at all that government works well doing some things or that capitalism has flaw seems to roll off you like water off a ducks back. You cite examples of failure then when I point out things that actually work pretty well in government, you simply ignore it. Government has been highly successful in these areas:

    Winning WW II
    The moonshot
    The Interstate highway system
    Construction of Hoover Dam
    Killing Osama Bin Laden
    The SC Technical College System
    Social Security
    Medicare
    Voyager
    The transcontinental railroad

    Conversely anything that gets in the way of the perfect world of free market capitalism is ignored. Grotesque failures that cost people and/or the environment include:

    Enron
    BP Oil Spill
    Exxon Valdez
    Pinto explosions
    Most any Microsoft product eg Zune
    Acid rain
    Flaiming rivers in Cleveland
    Walmart Checkout system
    Health Insurance companies denial of claims
    Firestone tire blowouts
    Cigarette company lies

    And the list goes on. This isn’t about whether capitalism or socialism is a better way to go. Ideally we should have a good mix of both. Capitalism, in all it’s glory, is at it’s roots based on greed. That greed is often effectively dealt with in the market. A company that ignores it’s customers may go out of business. But a company that pollutes the environment might thrive if its competitors have more of a conscience. That’s where government must step in to focus it’s regulatory efforts to reducing the negative spillovers. There just is no “invisible hand” to make them do the right thing but rather a very visible back hand to the chops may be in order.

    All the anecdotal stories in the world from this cousin or that friend that see some problem with government are simply not very persuasive. There are plenty of stories to counter those selected pieces of evidence.

    Reply
  28. Greg Jones

    Why shouldn’t we collect the local option…Sorry, it’s time to let this go.
    What are Joe and the South Carolina 5 saying about this? I’m sure Clyburn’s for it.

    Reply
  29. Tim

    Wow, Doug,… it sure takes a long time for business to do things. I thought it was just government that had that problem. Maybe if they hired you, you could get their sales tax problem solved in a month.

    Seriously, you are just defending a tax loophole, not dealing with a companies ability to make a software change when they already make them all the time.

    Reply
  30. bud

    Doug provides some pretty good support for Walmart’s position that Amazon has an unfair advantage. Somehow Walmart, along with every small mom and pop business, manages to collect sales tax. By exempting Amazon the other companies not only are disadvantaged by the cost differential of the sales tax but they face a costly burden of collection that Amazon doesn’t have to deal with. No wonder Amazon is successful they are given a huge subsidy that goes beyond the obvious cost of goods sold.

    Reply
  31. Mark Stewart

    Doug,

    I was being a bit sarcastic with the one month. Just for fun. But I think others have made more clearly the points that I was hinting at.

    And no, I have never programmed. However, I did spend more than a year stress-testing the earliest iterations of what has now become one of my industry’s leading portfolio management solutions. I was the guy demanding performance. I know how to work that … and I can’t hold a candle to Jeff Bezos.

    Reply
  32. Doug Ross

    I’m not defending a tax loophole. Go back to my first reply. It says this: “Try not to be shocked but I think Amazon (and all internet retailers) should pay sales tax ”

    My whole point was that if you want it to happen, start making it happen because it isn’t going to happen overnight or in a month. I guarantee you that Amazon will not even consider starting it this year. A huge percentage of their business is from Thanksgiving on…

    Reply
  33. Phillip

    All I know is that the Amazon recruiting office called me back last week to ask a few more questions, which represents the first non-immediate-rejection for a job application I’ve had since last October! (and that’s a pretty big number) so “go Amazon” is all I can think!

    Reply

Leave a Reply to Phillip Cancel reply

Your email address will not be published. Required fields are marked *