Thursday, October 2, 2014
Inquirer Daily News

As Internet sales tax spreads, Amazon grows postal

Fast-growing warehouse network set to begin deliveries

As Internet sales tax spreads, Amazon grows postal

The days when Americans could avoid state sales taxes by buying online from Amazon.com are drawing toward a close.

"By the end of 2012, five additional states will force Internet sellers to collect taxes:" Texas and Utah in July, Pennsylvania and California in September, Georgia in October, reports analyst David Strasser of Janney Capital Markets in a report to clients.

By year's end Internet sales tax will apply in states covering three-eights of the nation (measured by GDP), up from one-eighth last year. New York, Arkansas (home of Amazon rival Walmart), Connecticut, Illinois, Kansas, Kentucky, North Dakota, Vermont and Washington already have Internet tax collection requirements. New Jersey, Tennessee and Virginia are scheduled to start collecting Internet sales tax next year, Indiana and Nevada in 2014, South Carolina two years later.

"These changes could ultimately cut a 6%-9% pricing advantage from Internet-only retailers," adds Strasser. "Our discussion with private online retailers has indicated that online sales slow by as much as 10% after a state starts collecting sales tax."

But Strasser's Janney colleague Shawn Milne predicts only a "slight shift in the mixs of online sales to traditional retailers," citing survey results fromForrester/Bizrate Insights claiming "only 8% of consumers said that tax was a priority consideration when shopping online." More important are "convenience and selection;" big turn-offs including online shipping fees.

Milne expects online sales growth will remain at a "robust 15%+" per year, despite spreading sales taxes, thanks to increased smartphone shopping traffic and other "mutlilevel opportunities." Plus he expects Amazon will keep using the promise of building new "fulfillment centers" like the 1,000+-job center planned for Middletown in sales-tax-free Delaware this year "to strike further tax deals" delaying Internet tax collection in more states.

Amazon's negotiated surrender to state sales taxes has been accompanied by a strategic expansion of its warehouse network to sites like San Bernardino, southern California, and Patterson, northern California, which will make possible Amazon "next day or even same day delivery" in metro Los Angeles, San Francisco and other major centers.

Amazon's strategy starts to look clear: The company managed to delay sales taxes until it expanded its warehouse centers; it is by now nearly in position to replace the shrinking US Postal Service and for-profit rivals FedEx and UPS with its own Amazon deliveries. Amazon has 61 giant warehouses in 10 states (including 5 in PA's Allentown-to-Chambersburg warehouse belt and 2 bought from smaller companies in NY's NJ suburbs) at the end of 2011, and plans 15 more this year (including its second Delaware site). 

Joseph N. DiStefano
About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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