Amazon’s successful business model is “destroying department stores and retailing all over the country,” President Donald Trump told radio host Hugh Hewitt last year. How should free market conservatives interpret the president’s continued critique of Amazon? That question becomes particularly important as congressional Republicans embark on a once in a generation effort to reform our nation’s tax code this fall.
First, it should go without saying that capturing market share by offering consumers the best possible product or service at the best possible price is the heart of capitalism. It is that competitive spirit that lifts people out of poverty and drives transformative innovation in medical treatment, engineering, nutrition and, of course, communication. The dynamic growth of innovative, successful businesses should be integral to our identity as Americans. What should be an anathema, though, is the erection of government-imposed barriers to competition and innovation. And here, Trump deserves credit because he understands Amazon is trying to rig the game to its advantage.
To be clear, there was a time in Amazon’s corporate history that the company sought to avoid collecting state and local sales taxes. In 2008, CEO Jeff Bezos told shareholders that the company is “not actually benefiting from any services that those states provide locally, so it’s not fair that we should be obligated to be their tax collection agent since we’re not getting any of the services.” Bezos was basically echoing the Supreme Court’s 1992 Quill decision, which made clear that states could not force remote retailers to collect sales tax if they did not have a physical presence in the state.
In 2008, Amazon’s physical presence was concentrated and sales tax collection would have been a massive burden. To borrow a Trumpian phrase, Amazon’s “no-tax monopoly” was viewed as a legitimate business advantage a decade ago, but the company’s business model changed dramatically over the past nine years as it went from selling books out of a warehouse in Seattle to becoming the go-to online shopping hub. To deliver products to consumers within days — or hours — it made a business decision to build warehouses and distribution centers in nearly every single state. As a result, the internet giant has physical presence in about 30 states and is the nation’s fifth largest company.
Tax avoidance is no longer Amazon’s corporate position. Not only is Amazon lobbying Congress to enact a convoluted federal internet sales tax scheme, earlier this year the company announced it would collect sales taxes from every state with a sales tax.
An internet sales tax would put massive burdens on small businesses — mom and pop retailers selling remotely all across this country. Forcing online retailers to act as tax collectors for states in which they have no representation is not only a bad idea, it is one embraced by the ‘Clinton cartel’ the president so appropriately railed against during the campaign. There is nothing fair or equitable about forcing a small, online computer repair business in Michigan to play the role of tax collector for California’s bankrupt government.
Online retailers with a national footprint — not only Amazon, but Target, IKEA, etc. — retain an army of lawyers, accountants and software engineers to make it easy and seamless, but America’s small remote businesses do not have that luxury. In a sense, Amazon is trying to prevent the next Amazon.
In just a few short months, the Trump administration has taken great strides to rollback the massive regulatory compliance burden America shoved onto our economy. A new federal internet sales tax scheme enacted at the behest of special interests would mark a sharp turn away from four percent growth.
What’s more, such a regulatory scheme could benefit China. In 2013, Sen. Ron Wyden (D-Ore.) explained “an Oregon business would have to collect taxes for New York, but Chinese firms wouldn’t have to collect taxes for any State.” Wyden was warning that Alibaba, which is the Chinese government’s version of Amazon, could essentially be able to sell tax free into America. Wyden predicted that “people are going to end up calling” the internet sales tax scheme “the shop China bill.”
Trump’s instincts that the game is rigged are right in one sense, though. Earlier this year, a Citigroup analysis found Uncle Sam is subsidizing Amazon to the tune of about $1.46 per package delivered. Simply put, Amazon receives a “cross subsidy” from the United States Postal Service thanks to various delivery agreements. The arrangement not only benefits Amazon through lower costs but harms private shipping companies like DHS, FedEx and UPS that do not have access to the USPS’s infrastructure.
What can be done? Nearly 11 years ago, Congress passed the Postal Accountability and Enhancement Act to minimize these cross subsidies. What won’t solve the problem is creating a convoluted new internet sales tax scheme that will slap a massive new burden on small businesses and help Chinese internet retailers.
Dan Holler is vice president of Heritage Action for America.