August 11, 2013
In a piece that was ostensibly intended to dispel myths about Jeff Bezos, the new owner of the Washington Post, “Five myths about Jeff Bezos,” the paper seemed intent on creating new myths. Its list of myths included two items which are largely true.
Myth # 1 is “Jeff Bezos is destroying independent booksellers.” The piece implies that independent booksellers were already well on their way to collapse before Amazon came into existence telling readers:
“The year before, Barnes & Noble and the Borders Group captured nearly a quarter of all revenue from book sales.”
With the two big chains getting less than a quarter of revenue, this means that independent stores and smaller chains got more than three quarters of revenue. By contrast, last year on-line sales, the bulk of which went to Amazon, accounted for 48 percent of total sales. While some of this growth came at the expense of the two big chains (Borders has gone out of business), most of it was at the expense of independent book stores.
It is possible to debate whether the loss of independent book stores is a net positive or negative (obviously consumers value buying items at Amazon or they wouldn’t do it), but it is absurd to contend that Amazon did not hugely hasten the decline of independent book stores as his newspaper does here.
The other major non-myth on the list is myth #4 that:
“Amazon’s key advantage is that it doesn’t collect state sales tax.”
This is truly a remarkable assertion. If a mom and pop retailer had a website where they offered direct delivery to people’s homes, they would be required to collect sales tax on every item they sold. This can run as much as 7- 8 percent in many states. This means that if they delivered an item at the same price as Jeff Bezos, he gets to pocket an additional 7-8 percent of the price paid by consumers. This amount is larger than even successful stores’ profit as a share of revenue. (Walmart’s before tax profits are typically around 6 percent of revenue.) It is absurd to claim that this was not a huge advantage for Amazon as it became one of the country’s largest retailers. (A great test of this proposition would be having Amazon collect double the state sales tax in all of the fifty states for 3 years. According to the Washington Post, this should not be a big deal for the company.)
The piece also misleads readers by implying that Amazon did not aggressively fight efforts to subject it to the same sales tax paid by mom and pop retail outlets:
“Amazon says it is not opposed to the collection of sales tax — as long as there’s a simple, national system that is applied to all sellers, no matter their business model, location or level of sales. With that caveat, it has supported the Marketplace Fairness Act, passed by the Senate this year.”
In fact, until very recently Amazon fought hard at both the state and federal level to keep its sales from being subject to the tax. In fact it has threatened to disaffiliate from sellers in states where Amazon was being subject to the tax based on these affiliations. It was only after losing these battles in key states like New York and California that Amazon decided to support national legislation that would make all Internet retailers subject to sales tax. This would ensure that smaller Internet retailers do not enjoy an advantage over Amazon by not having to collect the tax in states where they do not have a physical presence.
The claim about the need for a “simple” tax repeats one of the joke arguments that Amazon put forward to avoid having to collect sales taxes for the last 15 years. They claimed that their programmers were too incompetent to code items to get the correct tax in each of 50 states and a variety of county and local jurisdictions.
Finally, the piece misleads readers by asserting:
“In fact, more than half its [Amazon’s] revenue comes from jurisdictions where it collects sales tax.”
This claim can only be made now that it has begun collecting sales tax in California this year. It would not have been close to true in 2012 or earlier.
Of course the key point is that after having a huge competitive advantage as a result of an implicit tax subsidy for more than 15 years, Amazon has established itself as a huge player in the market. Once a company has such a big niche in the market it is very hard to dislodge it. For example, since Microsoft became the operating system on the vast majority of PCs in the world it can continue to sell its software even if it were the worst garbage ever invented. In the same vein, Amazon holds an enormous advantage over any upstarts now by virtue of its size. It would have mattered much more if it was required to collect sales tax like everyone else back in 1998 than it does today.
Typos corrected from earlier version.
Addendum:
The NYT decided to weigh in on the veracity of the Post’s myth #1.
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