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Amazon is now collecting sales tax in some states in exchange for more distribution centers for same-day shipping options

Amazon is already a major threat to brick-and-mortar competitors with its low prices and easy online shopping method, but now, physical stores have another reason to fear the monster e-tailer: same-day shipping.

Amazon is currently working on same-day shipping methods for customers, which would send a package out only a few hours after the order is placed according to Slate. How is Amazon doing this? By opening more distribution centers, and putting a lot of money into these new centers to make them efficient. This is likely an expansion of Amazon's existing Local Express Shipping option which provides same-day delivery to a handful of large U.S. cities.  

Amazon's old way of conducting business was to set up distribution centers in low-cost states and ship the orders to wherever they needed to go. This worked because Amazon didn't have to collect taxes in states that it didn't have a physical presence in, and low-cost states didn't put too much financial strain on the e-tailer.

However, Amazon has been fighting that tax-related battle for awhile now. The online retailer cut ties with states like Texas, where Texas State Comptroller Susan Combs charged Amazon $269 million in unpaid sales taxes, and Illinois, where Sen. Dick Durbin (D-Ill.) introduced a bill called the Main Street Fairness Act, which would force Amazon to collect sales tax. In California, Governor Jerry Brown signed a bill that would require websites that forward shoppers to Amazon to collect sales tax in the state. The law is expected to generate $200 million in revenue, and prompted Amazon to threaten to leave California-based affiliates. It ended up filing lawsuits in many states like California, Rhode Island, North Carolina and Colorado.

But more recently, Amazon has been backing off on the tax front. It has agreed to collect sales tax in many states, including Texas, New Jersey, Nevada, Tennessee, Indiana and Virginia. Before that, the e-tailer only collected taxes in Kansas, Kentucky, North Dakota, New York and Washington.

Amazon has decided to bend on the tax issue because this would allow the company to open more distribution centers within those states. Having more distribution centers means even faster shipping, which is where the same-day shipping idea came from.

To make sure the same-day shipping method is a success, Amazon has poured a lot of money into making these new distribution centers. For instance, the e-tailer invested $130 million into new facilities in New Jersey, $135 million for two new centers in Virginia, $200 million for Texas distribution centers, $150 million in Indiana and another $150 million in Tennessee. But it's not finished yet -- Amazon plans to build as many as 10 distribution centers in California, totaling $500 million in expenses.

Amazon has also made these centers super efficient by purchasing picking robots, which accurately improve shipping times. It is also placing "lockers" at nearby drug stores and convenience stores, where those who live or work nearby can pick up their Amazon purchases from the locker if they wish.

Same-day shipping could really give brick-and-mortar stores (and even other online stores) a run for their money. Not only is Amazon convenient and cheap, but now it's also fast. The e-tailer keeps giving customers more reasons to shop from Amazon instead of competitors like Walmart and Best Buy. It's funny that brick-and-mortar stores complained that Amazon's lack of sales tax collection was unfair, and now that the online shop is collecting taxes, these other stores could still have the disadvantage -- and we'll likely be hearing about it.

In addition to being a major e-tailer, Amazon is becoming more of a tech giant as well with the release of its hit Kindle Fire tablet last November, and the upcoming release of its first smartphone and the next generation Kindle Fire.

Source: Slate

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Kozmo v2?
By immortalsly on 7/12/2012 1:14:55 PM , Rating: 2
I know some of you old-timers have a faint recollection of Kozmo :)

Anyway, it's a great idea. But I think it'll probably be limited to Amazon's most popular items? If I want that 120mm chassis fan, is Amazon going to have that in their urban warehouse? I wonder if they're going to put the warehouse right next to the UPS/FedEx/USPS building.

RE: Kozmo v2?
By quiksilvr on 7/12/2012 1:23:18 PM , Rating: 5
Amazon has a crapload of items that they Prime ship themselves. The popular items will range from virtually all types of electronics to books and appliances.

You reap what you sow, brick and mortar. You force nonsensical tax laws on Amazon, and Amazon decides to go for it like a "law abiding" citizen and promptly pwns everything.

RE: Kozmo v2?
By artemicion on 7/12/2012 1:37:33 PM , Rating: 2
Depends on how much same day shipping costs. Either it's too expensive to be a true advantage over B&M, or it'll increase the base cost of all items. Either way, the hundreds of millions of additional dollars Amazon is spending on new distribution centers will be shifted to customers somehow.

If you think that Amazon will "promptly pwns everything" AFTER it's forced to pay sales tax (an across the board 6-9% increase in prices, depending on where you live) AND AFTER it increases costs by hundreds of millions of dollars on new local distribution centers, you are delusional. The competitive gap between local B&M stores and Amazon is closing, whether you approve of sales taxes or not.

I'm not a fan of sales taxes by any sense, but even I think it's counter intuitive for tax laws to favor businesses who deliberately maintain their operations out-of-state. Either eliminate the sales tax for all businesses, or apply sales taxes to all businesses regardless of whether they sell locally or sell from out-of-state.

RE: Kozmo v2?
By lightfoot on 7/12/2012 2:14:05 PM , Rating: 5
Shipping is shipping, and overnight (air freight) is already one of the most expensive shipping methods. By having local distribution centers they could actually be reducing shipping costs.

Amazon uses technology to beat it's rivals. It reduces cost, improves speed, and reduces errors. In fact I bet their "picking" robots are already more knowledgeable and have better people skills than most Best Buy employees (of course the same could also be said of your average parking meter.)

RE: Kozmo v2?
By StevoLincolnite on 7/12/2012 5:26:44 PM , Rating: 2
Actually air shipping can be cheaper than ground shipping, it all depends on weight and how bulky an item is from my own experience dealing with Australian ground and air freight.

Plus... Air is so much more convenient, I've ordered items from an online computer store at around 10am and then had it travel 3,000 kilometers and arrive on my doorstep at about 1pm that same day.

RE: Kozmo v2?
By lightfoot on 7/12/2012 5:41:19 PM , Rating: 2
I'm not saying that they aren't using air shipping. Only that they are pre-shipping the product in bulk and staging it locally to meet local demand. This should be no more expensive than air shipping the product individually, and may actually be significantly cheaper (assuming the savings offset the cost of local warehousing.)

The customer may still spend more for same day shipping, but it's only because the convenience is worth the extra cost.

RE: Kozmo v2?
By mindless1 on 7/13/2012 2:04:18 PM , Rating: 2
That is not possible. Even if the computer shop already had the item on the cargo plane and that plane parachuted it down to your door step, with typical travel speed of 800 KPH it would take more than 3 hours for the flight alone... and many cargo planes don't fly that fast.

RE: Kozmo v2?
By MrBlastman on 7/16/2012 12:47:52 PM , Rating: 2
Plus... Air is so much more convenient, I've ordered items from an online computer store at around 10am and then had it travel 3,000 kilometers and arrive on my doorstep at about 1pm that same day.

Something doesn't sound right there. Are you talking about 1 PM Aussie time versus some other far away 10 am in another timezone? It just isn't possible to ship something 3,000 kilometers in 3 hours with our level of technology without physically loading it into a cannon and firing it at your house (and it'd have to be a really amazing cannon at that)--more likely a missile.

I wouldn't want to be there to have to sign for it. ;)

I think what people are missing here is that it might be great that Amazon is going to do same-day shipping--and hopen warehouses in those states... doing so costs money. They will have to pay for more leased property (or buy it), more upkeep costs on those properties. Along with that comes employees to manage and service things (including the robots).

Then you have inventory costs. You're going to be stocking more inventory or at the minimum, a categorized standard set based off of Amazon's database of typical purchases for your surrounding zip codes. They'd have to do this at the minimum to prevent stagnant product collecting dust (which per squre foot costs them money every month if they don't keep recirculating the space). Not everything will be stored locally as it'd be far too expensive to do so.

The gap between Amazon and B&M will continue to narrow due to the increased convenience.

RE: Kozmo v2?
By Reclaimer77 on 7/12/2012 3:13:08 PM , Rating: 2
I'm not a fan of sales taxes by any sense, but even I think it's counter intuitive for tax laws to favor businesses who deliberately maintain their operations out-of-state. Either eliminate the sales tax for all businesses, or apply sales taxes to all businesses regardless of whether they sell locally or sell from out-of-state.

Fortunately the Constitution and nearly 100 years of court rulings don't agree.

RE: Kozmo v2?
By ClownPuncher on 7/12/2012 7:25:37 PM , Rating: 2
Agreed, really. If certain laws are the jurisdiction of state and local govenrments, and they get stripped away, may as well dissovle the idea of statehood and the 10th amendment entirely.

RE: Kozmo v2?
By Samus on 7/13/2012 12:00:07 AM , Rating: 2
Amazon drop-ships most of the products they sell. That is, 70% of is products 'sold by...'

The affiliate simply ships the item directly to you without Amazon involvement. Obviously none of these items will be able to same-day ship because Amazon has little control over their affiliates shipping abilities.

RE: Kozmo v2?
By MojoMan on 7/13/2012 11:13:03 AM , Rating: 2
That is not necessarily true Kozmo. If the seller has a "Fulfilled by Amazon" gold box near their name, Amazon handles the shipping because those items are already in Amazon distribution centers.

Only sellers that don't have that "Fulfilled by Amazon" gold box don't pay Amazon to handle shipping for them, and therefore don't get to take advantage of Amazon's logistics.

RE: Kozmo v2?
By KentState on 7/15/2012 7:46:15 PM , Rating: 2
That is correct. I actually have implemented fulfillment by Amazon for two companies and the most recent did over 10 million in sales just through Amazon. About 2 million of that was sent directly to Amazon and fulfilled out of their warehouse. Strangely enough, it was cheaper for us to send product directly to Amazon and have them ship it then using our own workforce and shipping. Their rates are too good all the way around.

RE: Kozmo v2?
By Natch on 7/12/2012 3:19:42 PM , Rating: 2
Don't know about same day, but if you have prime, you can upgrade to next day for $3.99 per item in your order. Really not that bad, if you think about it.

For most people, same day simply won't matter, most of the time. But just think how many guys there are, that panic when they realize that TODAY is their anniversary, or their SO's birthday?? ;)

RE: Kozmo v2?
By Solandri on 7/12/2012 3:21:17 PM , Rating: 5
Depends on how much same day shipping costs.

The expensive part of same-day shipping is the long-distance haul (usually by plane). If there's a local distribution center, it won't cost appreciably more than regular shipping. The shipping companies are constantly getting packages in and sending them out. If your distribution center is getting enough of their trucks that they're making pickups multiple times a day, it's no additional work to put packages picked up in the AM on a truck in the PM for a local delivery run it was going to make anyway.

I'm not a fan of sales taxes by any sense, but even I think it's counter intuitive for tax laws to favor businesses who deliberately maintain their operations out-of-state.

The tax laws do not favor out-of-state businesses. The taxes hurt in-state businesses. Subtle distinction.

The states have been arguing from the standpoint that the sales taxes are a given, when they're not. It's completely within their power right now to eliminate any advantage Amazon has without running afoul of the Constitution - simply eliminate their sales tax. The truth is it's the states themselves which have put their in-state businesses at a disadvantage with a high sales tax.

On a more abstract level, I don't really understand why people are for taxing Amazon. It's exactly why the clause was written in the Constitution (to prohibit states from discouraging interstate commerce), and it forces states to compete with each other for an environment friendly to commerce. If a state taxes its sales up the wazoo, its citizens will simply buy from a state which doesn't tax sales as much, thus providing a moderating force against excessive taxation (one which doesn't require you to move out of the state). Conservatives should be against sales taxes because it's a tax on commerce. Liberals should be against it because it (being completely flat) is one of the most regressive taxes we have. Simply eliminate sales taxes and shift the revenue shortfall to other, more progressive taxes like income taxes.

RE: Kozmo v2?
By Guspaz on 7/12/2012 5:09:57 PM , Rating: 2
They charge $8.99 per shipment and $0.99 per item for local same-day delivery to Prime customers.

RE: Kozmo v2?
By bah12 on 7/13/2012 10:44:07 AM , Rating: 2
Wow that could actually work out to be cheaper than the existing Prime model of $3.99 per item.

My best prime usage was a King Sized Memory foam mattress. They come vacuum packed to the size of a 3x3x4 box. Thing was heavy easily 150+ lbs. Next day for $4 :)

I'm fairly impulsive, and Prime definitely helps me and hurts me as things I could wait 2 days for I often time pay $4 per item to overnight. They will get more of my business for sure if I can pay a flat $9 + $1/item for the easy of having it all delivered to my door the same day. Hell I tip a valet $5 bucks to park my car, why wouldn't I pay a store $10 + $1 to save me a trip to town with 3 kids. Not every time for sure, but it will come in handy

RE: Kozmo v2?
By nafhan on 7/12/2012 3:23:30 PM , Rating: 2
Unless this is super cheap, it won't change my buying habits much at all. If I can wait 4 - 8 hours for something, I can almost always wait 2-3 days. If it's something that can be bought online, I'm probably already doing so. I do get that instant gratification is important for some people, though.

Where I do see potential, though, (if the same day stuff is fairly cheap) is putting Amazon into a position where they could seriously get into the grocery business. Local distribution centers + same day shipping = they could probably sell produce and meat.

I'll see, I guess, since it sounds like I probably live close to one of the new distribution centers... Very cool. At this point, anyone with a brick an mortar store should be a little worried.

RE: Kozmo v2?
By StanO360 on 7/12/2012 5:01:16 PM , Rating: 2
I think it will make Prime a more profitable calculation for Amazon. I got a free month of Prime and got an item by mail, my guess is from Arizona to CA.

All these retailers who cried about the sales tax (funny they never mention the lack of shipping costs), we be bit in the backside at least in CA.

Suddenly Amazon is not just cheap, but fast and easy (sounds like an old girlfriend!).

"This is from the It's a science website." -- Rush Limbaugh

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