Amazon Continues to Present Taxing Challenge to Small Business Community

Michael Essany Headshot by Michael Essany on February 15, 2011
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There’s a growing movement aimed at changing the way the world’s largest online retailer does business.  State governments are taking aim at Amazon with a variety of pending legislation that would either require Amazon to begin collecting sales tax or provide states with customer sales records. Either way, the prospective shakeup in online retail could have a profound impact on the small business community at large.

According to Jason Brewer, a spokesman for the Retailer Industry Leaders Association, the push for change simply boils down to leveling the playing field in retail. “A company the size of Amazon, with $14 billion in sales,” says Brewer, “should not be given a government-sponsored advantage over brick-and-mortar retailers.”

The principle of fairness aside, states are also looking for creative ways to compensate for budget shortfalls and ballooning deficits. As a result, state legislatures are actively searching for alternative sources of funding, and there’s no shortage of revenue to be collected by mandating a change from Amazon’s current practice of not collecting sales tax from its customers (except in the few states where it has a physical presence).

With online purchases now accounting for a tenth of all U.S. retail sales, small businesses have much to gain from the potential passage of Amazon-targeted legislation currently before many statehouses from Virginia to Colorado.

Alan Hazlett, owner of Camera Works in Colorado Springs, Colorado tells an NBC News affiliate in his community that the business he’s owned for 20 years continues to struggle in the midst of Amazon’s “unfair” advantage.

“It hurts local merchants.” Hazlett says. “It’s a 7.4 percent disadvantage to us because we have to charge the tax. There’s no way around it and we can’t absorb it.”

Hazlett is among the growing number of small business owners lobbying for a system that would require all online retailers to collect sales tax.

“There should be a way to fairly appropriate taxes between people who are buying their stuff over the internet and people who are buying it locally. Everybody should pay their share.”

Although small business owners and brick-and-mortar retail advocates largely support the movement, there’s no guarantee that legislators will gain enough traction to effectively make a dent in the status quo, considering how popular tax-free online shopping is with their constituency. Simply put, while small businesses may be the proverbial backbone of the U.S. economy, state legislators may ultimately lack the backbone necessary to oppose the mega online retailer when it comes to doing business at home.

In Tennessee, as just one illustrative example, Amazon is planning to build two new facilities at a cost of $139 million. The plants will reportedly infuse the local economy with 1,400 full-time jobs and another 2,000 seasonal positions. In return for setting up shop there, Amazon wants the state to excuse its practice of not collecting sales tax from Tennessee customers. Amazon, of course, has no objection to consumers paying sales tax. The online retail giant would just prefer that customers pay it directly to the state along with their yearly income-tax filing (as has been the law regarding mail-order shopping for decades). But if the number of customers who actually take this extra step come tax time was truly indicative of Amazon’s overall sales, the online retailer would have gone belly up years ago.

Consequently, legal experts who have publicly weighed in on the matter almost universally concur that state governments will have a monumentally difficult time forcing change at Amazon. And until that change actually happens, small businesses across the U.S. will remain at a stark and, ahem, taxing disadvantage.

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