Amazon to focus on same-day delivery, collection of sales tax in more states

Posted at 7:08 AM, Jul 13, 2012
and last updated 2012-07-13 09:08:52-04

(CNN) — One of Amazon’s biggest advantages over local stores and mega-chains like Walmart is its lack of sales tax in most states. People can hop in a car and go buy a product from a local store immediately; or they can pay less, make the purchase quickly from a computer or smartphone and wait for the product to be shipped to their doorstep as soon as the next morning.

Amazon has fought hard to avoid collecting sales tax during its 18-year history by setting up distribution centers in select tax-friendly states. But a new report in the Financial Times says the company is changing its strategy, setting up distribution centers across the United States in locations that insist on collecting sales tax.

Why would the company want to give up its price advantage? The Financial Times thinks it’s so it can start making same-day deliveries. Additional distribution centers in more locations will put the goods in closer proximity to customers, allowing Amazon delivery to go from overnight to later that same afternoon.

The company is taking a gamble on speed and convenience being more important to its consumers than the lack of sales tax. In a Citigroup survey earlier this year, 52% of Amazon shoppers not paying sales tax said they would be less likely to buy goods on the site if they had to pay that additional amount.

However, Slate’s Farhad Majoo thinks the move would take a bite out of local retail: “It’s hard to overstate how thoroughly this move will shake up the retail industry. Same-day delivery has long been the holy grail of Internet retailers, something that dozens of startups have tried and failed to accomplish. (Remember But Amazon is investing billions to make next-day delivery standard and same-day delivery an option for lots of customers. If it can pull that off, the company will permanently alter how we shop. To put it more bluntly: Physical retailers will be hosed.”

It’s unclear how the logistics of a same-day business model would work. Currently, the fastest delivery options from the major shipping services — FedEx, UPS and USPS — are next day. But Amazon has already been using local courier services capable of same-day delivery. Given how much work Amazon regularly throws their way, FedEx and UPS could possibly work with the company on new shipping options.

A battle has been brewing for years between Amazon and the various states attempting to collect sales tax. The states are often under pressure from local merchants and big box retail giants who see the lack of tax as an unfair advantage for Amazon.

Companies that sell goods online are typically only required to collect sales tax in states where they have a physical presence. Amazon currently collects sales tax in six states: Washington, North Dakota, Kansas, Texas, Kentucky and New York. But Amazon’s new plans mean the company will begin collecting sales tax in ten additional states over the next four years, starting with Pennsylvania and California this September.

Would same-day delivery be worth the cost of sales tax for you?

By Heather Kelly
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