How Amazon.com Undersells Every Other Major Retailer

With headquarters in Washington and warehouses in North Dakota, Kentucky and Kansas, Amazon.com only has to charge sales tax to customers who reside in one of those four states. For everyone else, Amazon.com usually offers the lowest prices. With sales tax climbing to nearly 10 percent in some cities, Amazon goods can be a lot cheaper than the alternatives.

Why doesn't Amazon charge you sales tax? It has to do with the regulations states use to determine which companies must collect taxes. According to Quill Corp. v. North Dakota, a 1992 Supreme Court ruling, companies are only required to collect sales taxes from their customers when they have a presence in the state in which they reside. If you buy something from the Web site of a company that has physical stores nearby, you'll most likely have to pay taxes. When you shop at online-only stores, you pay tax only if the store has substantial operations in your state. Since Amazon's headquarters are in Seattle, you have to pay taxes if you live in Washington State, and because it has warehouses or other facilities in Kentucky, Kansas, and North Dakota, you've got to pay taxes there, too.

Sales tax is a touchy subject for Amazon. Local retailers have long protested that online stores' tax-free status gives them an unfair price advantage. Amazon, wary of provoking state or federal authorities, has played down this advantage. It doesn't tout tax savings anywhere on its site or in other marketing efforts. In a brilliant report on Amazon's tax strategy, Michael Mazerov of the Center on Budget and Policy Priorities points out that company representatives have long argued that Amazon's tax advantage is not a big deal. "People shop online for convenience, for huge selection and great prices, and not because of any sales tax issue," a spokesman said in 1999. And an executive once told a group of state tax administrators that "we don't consider tax as a competitive advantage." (The company didn't respond to my inquiries about its tax policies.)

Read the full story at Slate.

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Nicholas Jackson is a former associate editor at The Atlantic.

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