Posted on Tuesday, September 6th, 2011 | In Current Market News, Stocks to Watch
One of the largest online retailers, Amazon.com Inc (AMZN), continues to oppose sales tax collection by offering to create jobs instead. Thanks to the weak jobs scenario and consistently depressing jobs reports (see our take on jobs reports here - Ugly Jobs Report in Depth, pt. 1 and Ugly Jobs Report in Depth, pt 2), regulators that had once been hungry to narrow deficits are now seriously considering the cost of job creation.
A few states appear to have taken the bait (South Carolina and Tennessee) according to a Forbes report, although agreements are far from concrete and are now up against much controversy and opposition from brick and mortar outfits.
Wares from these retailers appear more expensive when compared with those from online retailers, since they are forced by law to collect taxes on behalf of their respective states. As the growth in online retail continues at a rapid pace, largely at the expense of offline retailers, the animosity between the two camps has increased.
Meanwhile, other online retailers that also sell offline, such as Staples Inc (SPLS), Dell Inc (DELL), Apple Inc (AAPL), Office Depot Inc (ODP) and Wal-Mart Stores Inc (WMT) continue to collect and pay the taxes in all states, which singles Amazon out for preferential treatment, since it only does this in five states.
These pressures notwithstanding, Amazon is honoring its part of the agreement with South Carolina and Tennessee by setting up its warehouses in the states, thereby creating several thousand unskilled jobs. Of course Amazon is not getting a permanent reprieve; it has agreed to do this for a five-year breather, which is a very good deal. Amazon needs the fulfillment centers in any case, the non-collection of taxes simply makes the company more competitive.
Amazon has seen much greater opposition in important states, such as California and Texas. But the company’s efforts continue regardless. It is now collecting opinion through the “More Jobs Not Taxes” coalition with California consumers, for which it needs half a million supporters to bend the legislative stand. (Amazon intends to create 7,000 jobs in the state if it is exempted from the collection of sales taxes up to at least 2014.) Since a delay in implementation is all it is looking for, Amazon is very likely to succeed in its efforts.
In Texas, the story is a little different, with legislators divided on the issue. Here, Amazon has already been charged $269 million worth of sales taxes (including back taxes), something the company continues to fight. Despite the promise of 6,000 jobs, Amazon’s lobbying in the state appears to have fallen short.
Amazon continues to threaten the closure of operations in all states where it is required to collect taxes. At the same time, it is ostensibly supporting the bill introduced by Senator Dick Durbin, which seeks to force online retailers to collect taxes in the same way as those operating offline (possibly because the bill is unlikely to be passed given the limited support from the Republicans). While these strong-arming tactics are unlikely to go down well with legislators, Amazon could win in the short term and buy itself the few years it is seeking.
Amazon shares are currently ranked #3 by Zacks, which implies a Hold rating over the next 1-3 months. We are also Neutral in the long term (3-6 months).
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