Finance

The End of Amazon's Florida Tax Loophole

by | April 17, 2014

By Richard Mullins

If you like buying things tax-free on Amazon, you better hit the "Buy" button before May 1.

Amazon officials confirmed the massive online retailer will start collecting state sales taxes in Florida on that date, though some tax experts say Amazon will likely try to ease the jolt.

For years, items have been tax-free on Amazon for Florida customers, due to a loophole in commerce laws that let a company avoid collecting local sales taxes in states where it doesn't have a physical presence. Since Amazon (for now) doesn't have any operating warehouses in Florida, and the company uses FedEx and UPS to deliver packages, Amazon can sell tax-free in this state. That gave Amazon and its customers an automatic 7 percent discount within the City of Tampa compared to shopping at the mall, and an advantage over any online retailers like BestBuy or Macy's that did have a physical "nexus" in Florida.

That also means the same item effectively costs different amounts on Amazon, depending on where the buyer is -- for instance California where Amazon has warehouses and collects local taxes, or Florida where it has no warehouses and does not. Unfortunately for Amazon this also added some added time for shipping items to Florida customers from Amazon fulfilment centers outside Florida, something the company has been working to reduce.

Now, Amazon is building two, gigantic warehouses in Florida, one in Lakeland and one in Ruskin that may also be a platform for Amazon to start delivering fresh groceries, as it does in several other U.S. markets. While declining to offer details, Amazon Spokesman Ty Rogers confirmed the retailer will be required to start collecting sales taxes on May 1.

It's widely expected Amazon will finish the Ruskin warehouse sometime late this year or early next. Though Amazon plans to use automated robots to help sort packages, both the company and the Governor have pledged the warehouse projects will add 1,000-plus jobs to the state, and Amazon officials claimed they would pay 30 percent more than typical retail jobs, plus stock options and other perks of Amazon employment.

Amazon has made similar build-then-tax moves in other states, as politicians in Washington have yet to come to a deal on whether there should be some federally imposed rule, requiring online retailers to collect local sales taxes wherever the customer resides. Retailing associations have made their own pitch on the topic to level the playing field with Amazon, and Amazon has gone on record advocating for a "Fairness" tax structure.

Amazon now collects sales taxes for purchases sent to 20 different states, according to Amazon's tax tutorial online. As for whether Amazon will lower product prices here to soften the blow of new taxes, Amazon officials declined to say, but other experts say Amazon will do just about anything to compete with rivals online. "If Amazon is optimizing its prices to maximize profit, then they shouldn't raise prices by the full 7 percent but by something closer to 5 percent," said Robert Phillips, a business professor with Columbia University's business school who studies pricing. "On the other hand, if they are feeling political, they might just tack the 7 percent on as clearly labeled 'Florida sales tax' so that Florida residents get the picture that they are paying more thanks to their legislature."

Even when Amazon starts collecting taxes, "I don't think this makes them less competitive," said Mark Faggiano, founder of the San Diego-based TaxJar, a company that helps online merchants calculate what can be hundreds of different taxing rules across the country.

For one, Faggiano notes Amazon changes prices on millions of items every day, often minute to minute, in a practice called "Dynamic Pricing," which treats the price of anything from a toy to a book in similar ways that airlines treat a seat on a flight -- changing prices depending on demand.

Indeed, the same television can change prices every second on Amazon, depending on what the price is at rivals like BestBuy and Walmart.

Amazon has long ago figured out how to tactically change prices in states where they begin charging taxes, he said. "It will be up to every consumer to decide what convenience is worth to them," he said. "But I think people love the service so much with things like next-day shipping that there may be some short-term disenchantment with paying taxes, but that will eventually go away and people will love them as much as ever."

(c)2014 the Tampa Tribune

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