Amazon.com, Inc. (NASDAQ:AMZN) shares were trading down by more than 1% on Friday, the same day it was revealed that Congress was looking at a bill to institute an online sales tax. For the full week, Amazon shares are up by just over 1.5%, and the year so far sees the firm’s shares up more than 6%.
The new bill, which has so far garnered bipartisan support, would allow states collect taxes from out of state retailers who sell their wares over the internet. The deal would see prices on sites like Amazon.com, Inc. (NASDAQ:AMZN) go up as taxes increase. The bill is entitled the Marketplace Fairness Act, and the Representatives backing the new laws are determined to see it passed this year.
Three similar bills were introduced in the last Congress, but none of them managed to pass. This gives hope to online retailers who would more than likely see their sales decline if prices were increased on the introduction of a sales tax.
The reasons behind this bill, and the three that came before it, is to protect traditional brick and mortar retailers from the effects of online competition. Right now the ability of States to mandate sales tax on online retailers is restricted. This means traditional retailers pay a higher effective rate of tax, and the State takes in less and less revenue as sales move to the online arena.
The current regime means most states rely on their residents paying taxes on online purchases voluntarily. That, it can be assumed, does not happen very regularly. The new law gives the power to states to collect taxes from online retailers, though it does not force them to do so.
Opponents of the bill say online retailers, particularly smaller ones operating in niche businesses, would be crushed under the pressure of trying to calculate taxes for each individual district, and changing prices accordingly. If it were done in that manner, online retailers would lose consistency in their pricing, leaving consumers confused, and damaging brands.
Amazon.com, Inc. (NASDAQ:AMZN) would be one of the hardest hit by the change in the law. The company began charging sales tax to some consumers in the last quarter of 2012, under pressure from some States. Amazon investors will be able to get over the bump a new sales tax will create. Smaller retailers may not be so lucky.