Did Amazon cheat its way to the top?

Published on Friday, 2 May 2014 22:37 - Written by

In an amazingly undetailed analysis of the success of Amazon.com, the left-leaning website ThinkProgress says more with its presumptions than its conclusions.

“Amazon.com has reshaped American commerce in just two decades,” author Alan Pyke acknowledges. “But how much of the online shopping empire’s success owes to innovation and entrepreneurial genius, and how much of it stems from cheating the system? Without the loopholes it uses to avoid state sales taxes, new research shows, Amazon loses a substantial portion of its customers’ spending to alternative retailers.”

Do you see what just happened there? Pyke presumes that “loopholes” and “avoiding state sales tax” equate to “cheating the system.”

That’s simply wrong. Amazon broke no tax laws. In fact, lawmakers across the country struggled to bring their tax codes into the Internet age, because Amazon was something new. The online retailer was happy to charge and pay sales taxes for intra-state purchases. But the company was doing something the laws hadn’t contemplated — selling items from one state to a customer in another. Where’s the point of sale?

Because sales taxes go in part to the state and in part to municipalities, calculating them for an online purchase could be nearly impossible.

Nearly.

Another issue here is fairness. Few of us really like taxes. But we can all agree that if taxes must be levied, they should be levied fairly. Amazon.com’s claim of exemption from such taxes gives it an unfair advantage over physical retailers.

But in 2012, Amazon reached an amicable agreement about the issue with the state of Texas. At the time, we commended the company’s good citizenship. That agreement not only brought in tax revenues to the state coffers, but it also paved the way for the return to Texas of an Amazon.com distribution center, with about 2,500 jobs.

Sales taxes pose no real threat to Amazon’s bottom line. The company still has some important advantages — it offers far more selection than any physical store could, and it sends those products right to the customer’s doorstep. Consumers will pay for those conveniences, but the addition of sales tax won’t unfairly discriminate against physical retailers.

What Amazon has said it wants, however, has always been reasonable: It wants a simpler way to pay taxes. There should be a way to do that, with Amazon’s amazing computing power and its willingness to work with the many, many government entities.

But back to ThinkProgress. Was Amazon “cheating the system” if the laws were unclear? No. Nor is any other American company “cheating the system” if it avoids taxes through clever (but legal) accounting means. If there’s a problem, it’s with the tax code, not the taxpayer.

Still, an even more disturbing presumption lurks beneath ThinkProgress’s analysis. And that presumption is that it’s the government’s money in the first place.

If it’s the government’s money, then any tax break is a handout. Any “loophole” is a means of stealing. Sadly, that’s the prevailing view of money in Washington, at present.

Amazon’s success isn’t due to cheating. It’s due to a better business model.