Amazon has long played with tax loopholes in the US.
The "use tax" is to be paid by the purchaser either directly to the seller or to the tax administration. It represents roughly between 8 and 10% of each sale depending on the US State you live in. As an example, on a $100 sale the purchaser would need to pay an additional $10, making the bill $110.
In the past Amazon didn't charge their customers the tax and has been subject to various federal law suits. Their reasoning was inspired from a 1992 Supreme Court ruling stating that companies are only required to collect sales taxes from their customers when they have a presence in the state in which they reside. In Amazon's case, customers would be required to pay taxes where Amazon has set physical operations and warehouses. If you live in a state where Amazon has no physical facilities, you wouldn't pay the sales tax on purchases, giving Amazon the chance to be more competitive on prices compared to other national retailers.
Recently Amazon capitulated and began collecting tax money from their customers. Their reason? A change in strategy. Amazon's approach has always been to set up their distribution centres in low-cost states to deliver to high-cost rich states. For instance an order would be shipped to California from a warehouse in Kentucky.
Amazon’s ambition is now to achieve same-day deliveries - the Holy Grail for all online retailers. If Amazon makes their customers pay taxes, they are free to open warehouses close to the rich metropolitan cities. And if they achieve this, they would give a serious shake-up to most online retailers and also to physical stores.
Amazon is spending a lot of money trying to achieve same-day deliveries. They recently invested $130 million in new operations in New Jersey, at the footstep of New York, and they are building multiple facilities in Virginia, Texas, Tennessee and Indiana. This year they will open two huge distribution centres near the population masses living in Los Angeles and San Francisco, and might open 10 more in the state of California.
Not only is Amazon spending on new distribution facilities but they are also spending on making these centres more efficient, automating them with "picking robots" and subsequently improving shipping times as well as reducing errors. The company also set up automated lockers at brick-and-mortar stations (e.g. shops like Friendly) where customers can pick up their orders if they can't get them delivered at work or home. Customers would enter a PIN on the locker and retrieve the purchases made online.
US physical retailers have long argued that if Amazon charged taxes, their prices wouldn't be so competitive. With equal prices you would prefer the instant gratification of getting your goods immediately in a physical shop. But immediacy is all relative when you have to get in your car, drive to the shops, find what you want to buy, queue at the till and drive back home to enjoy your purchase. What if you order online in the morning from the comfort of your home and get your parcel delivered the same day?
