The sun is setting on the special exception for e-commerce as Amazon begins collecting California sales tax tomorrow. Image: Jesse Varner/Flickr
Starting tomorrow, one of the world’s largest economies will no longer enjoy one of history’s best tax breaks. That’s when Amazon (AMZN) will start collecting sales tax in California. Since emerging as an e-commerce pioneer as a bookseller during the first dotcom bubble, Amazon has gone on to sell hundreds of billions of dollars’ worth of stuff. The company’s success may have come quickly, but 15 years is still a long time for such a prominent business to have benefited from such a massive advantage over its brick-and-mortar competitors.
Because of the absence of overhead needed to maintain a physical store, Amazon typically can offer its products for about 10 percent less than if a shopper had plucked it off a retail shelf. The no-store savings plus the no-tax discount have together allowed Amazon to clobber its rivals even with the added expense of shipping. The price edge becomes especially keen with low-weight, high-cost items such as digital cameras, smartphones, and other consumer electronics. At the moment, Amazon’s most popular camera is the Nikon D600, which sells for close to $2,100. California sales tax rates vary from city to city and county to county but top out at just below 10 percent. For the rest of the day today, you can still get that camera for as much as $200 less than you’ll be able to tomorrow.
With savings like that, the only wonder is that in-state retailers didn’t start pressuring politicians sooner. But not until the state itself began to suffer chronic budget shortfalls did lawmakers get aggressive. The AP says the newly enforced sales tax rules that extend beyond Amazon to some 200 out-of-state online retailers will bring an additional $200 million into state coffers, including about $80 million from Amazon alone. That’s not much in the greater scheme of California’s deficit, which was closing in on $10 billion when the state started its fiscal year in July. But it’s enough to cover any number of important programs, such as California’s state parks budget, which lawmakers threaten to gut every year despite the parks’ popularity.
After Jerry Brown was elected California’s governor in 2010, the state came after Amazon hard for sales tax. Amazon placated Brown with promises of warehouses and jobs. In an event obvious in its symbolism, Amazon executives came to Gap’s San Francisco headquarters just under a year ago for a signing ceremony in which Brown approved a bill to postpone enforcement against online retailers of the state’s sales tax rules. California would back off while Amazon lobbied Congress for a nationwide e-commerce sales tax policy. While such a law was never going to emerge out of the current stalemate in Washington, the agreement gave Amazon breathing room to keep offering its no-tax discount while building out its strategy to compensate when that discount ultimately disappeared.
Amazon has made no secret of its same-day delivery aspirations. As the company erects new distribution centers across the nation’s most populous state, that ambition becomes more attainable. Same-day delivery brings Amazon that much closer to the traditional retail experience of walking into a store and walking out with what you’ve bought. If Amazon is going to have to collect sales taxes like brick-and-mortar stores, clearly the company has decided to become more like brick-and-mortar in other ways, too, even as traditional retailers merge their e-commerce and physical operations with in-store pickups of merchandise you ordered online. As the distinctions between offline and online shopping blur, and the sun sets on Amazon’s special exemption, so too fade the final shreds of the illusion that e-commerce is anything but normal. For those of us who remember when Amazon was still putting those tiny ads on the front page of the New York Times in the mid-90s, that vision of buying stuff online as a novelty, as something different, pioneering, exceptional, is hard to let go of. But not as hard as handing the tax man all that extra cash.