Amazon Tax Followup

Amazon reported net sales of $9.91 billion for the second quarter 2011, up 51% from $6.57 billion for same period last year. Second quarter net income fell to $191 million, down 8% from $207 million year ago. Most customers pay no sales tax on purchases from the internet sales giant, and Amazon has been shutting down affiliate programs in states that declare an affiliate to be a company 'presense' and demand sales taxes be collected.

The Wall Street Journal noted that Amazon's tax-free sales give it about a 10% pricing advantage in the higher sales tax states, less for lower sales tax states. According to Credit Suisse, Amazon could lose about 2.7% of its North American sales if Congress passed online tax legislation. Retailers would be pleased if the playing field became leveled and Amazon had to collect state sales taxes. States would probably rejoice, too.

But even with collecting state sales taxes, Amazon would not necessarily lose its price advantage. A William Blair & Co. report noted Amazon averaged an 11% price discount compared to its brick-and-mortar rivals. Without adding state sales taxes, Amazon had lower prices on approximately 56% of items. With taxes, it dropped to 48%.