The Amazon Tax Predicament

Amazon.com, Inc. AMZN has been under fire from President Donald Trump in recent weeks, partly due to its tax payments. Trump has tweeted that Amazon pays “little or no taxes to state and local governments” and that the company is “doing great damage to taxpaying retailers.”

Amazon's Unique Situation

Amazon pays sales taxes to the 45 states that have them, but only on sales made directly by Amazon. Amazon isn't required to pay state taxes on sales made on its platform by third-party sellers. In Amazon’s annual letter to shareholders, the company disclosed that third-party sales now make up more than half of Amazon’s total online marketplace unit sales.

The revelation raises some interesting questions about Amazon’s tax situation, including whether it should be changed and what type of impact potential changes could have on small businesses, Amazon’s third-party sellers and customers.

An Expert's Take

Benzinga recently spoke with Rebecca McElroy, tax partner at Maddox, Thomson & Associates in Houston, about the complicated Amazon tax situation.

Amazon may not be as vulnerable to potential changes in tax law as some investors think, McElroy said. 

“Sure, Amazon, along with all online retailers, will be impacted if Congress passes legislation [or the Supreme Court rules] that states may collect sales tax from buyers based on the rate in their home state,” she told Benzinga. 

“However, it is likely to have a positive effect on Amazon, leaving its competitors struggling to keep pace."

In the event of a change in tax policy, Amazon's prices would likely remain static, the CPA said. 

As far as Trump’s accusations are concerned, McElroy said Amazon is doing nothing wrong from a legal standpoint and shouldn't be singled out or targeted. 

“Amazon, along with many of its rivals, appropriately collects and remits sales tax where it has an in-state presence — the law, as it stands today." 

At the same time, the rise of online sales means some tax policy could be getting outdated, McElroy said.

Collateral Damage

When Benzinga asked about the potential impact of online sales tax reform on small businesses and startups, McElroy said going after Amazon could result in collateral damage.

“The proposed changes, which would allow states to tax third-party sales without an in-state presence, could be damaging to some small businesses and startups,” McElroy said. “It is doubtful smaller internet retailers and startups will have the means to navigate these complex laws without passing additional charges on to its consumers, quickly leading to their failure.”

The Amazon Tax Problem

Amazon reportedly paid $412 million in federal, state, local and foreign taxes in 2016, according to PolitiFact. From 2007 to 2015, S&P Global Market Intelligence reports that Amazon paid total taxes amounting to roughly 13 percent of the company’s profits. The rate is roughly half the tax rate of the average S&P 500 company over the same time period.

As the law stands today, Amazon could be legally getting away with paying lower tax rates than many of its brick-and-mortar competitors. Yet argeting Amazon with new online sales taxes may be more difficult than it seems and could actually serve to help Amazon solidify its dominance in e-commerce.

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