The President claims that Amazon is—in no particular order—ripping off the U.S. Postal Service, not paying taxes to state and local governments, and putting local retailers out of business. The facts, however, are not on his side at first glance.
Amazon collects sales tax in every state that requires it to do so. The Postal Service has concluded that contracts such as Amazon have generated $7 billion in revenue last year. As for lost jobs, the retail sector did lose 66,500 jobs in 2017. Then again, then President-elect Trump took credit for Amazon’s 2017 plan to create 100,000 jobs with full benefits.
Perhaps the President is simply using the time-tested negation ploy of misdirection. Amazon is up for $10 billion worth of Defense Department contracts that will be completed soon. Likewise, the Wall St. Journal could be correct that the President’s attacks are personal because Jeff Bezos, Amazon’s CEO, owns The Washington Post. If that’s the case, the facts are largely irrelevant.
One thing is certain. If this fight is or ends up being about taxes, small businesses lose.
While Amazon collects taxes on sales that it fulfills, it only collects for the third-party retailers on its Amazon marketplace platform in the handful of states that require it to do so. In the vast majority of situations, consumers are not charged sales tax for purchases from the small businesses that fulfill them.
This all goes back to a 1992 Supreme Court ruling that said that mail-order catalogs are only required to charge sales tax if they have a physical presence in the state. South Dakota and other states are currently challenging that ruling, and the Supreme Court has agreed to hear it this year.
Ironically, it could be significantly more difficult for small businesses to compete if the President gets his wish on the uniform collection of sales tax. Truly small retail businesses are less likely to have the resources to track and report online sales across multiple states. Adding this requirement will raise their costs. Likewise, small businesses will be at a competitive disadvantage if they have to raise their prices to cover the extra regulatory requirements. The result could be that large online retailers such as Amazon, Walmart, and Alibaba could see more shoppers buying directly from them.
What does this means for small businesses?
Amazon isn’t the first mega-retailer to make it difficult for small business to succeed. It isn’t even the largest. The Sears & Roebuck catalog declared itself to be the “cheapest supply house on Earth” back in 1894. You could even purchase your house from a Sears & Roebuck catalog.
By comparison, there are larger threats to small business than Amazon. Walmart reported 2017 revenue of $486 billion compared to Amazon’s $178 billion. The 1.5 million Walmart employees in the U.S. alone are more than twice as many as Amazon employs worldwide.
The worst thing a small business owner can do is to ignore the pending Supreme Court case, assume that the President is really just on a personal mission to mess with Jeff Bezos, and do nothing. That, however, is a huge mistake.
If you haven’t been reporting your online sales, get ready. This will be resolved on a state-by-state basis even if nothing happens at the federal level. Online sales totaled $119 billion in the fourth quarter of 2017. That accounted for a little over 9 percent of total retail sales in the quarter, but it represents over a 200 percent increase in online sales over the past 10 years. The revenue to state and local governments is too large to ignore.
Most important, now is the time to perfect your story. Customers are asking “why you, why now, what makes you relevant?” It is up to you to create a compelling reason for people to choose you regardless if you are operate virtually or in a brick-and-mortar location.
Randy Pennington is an award-winning author, speaker, and leading authority on helping organizations achieve positive results in a world of accelerating change. To bring Randy to your organization or event, visit www.penningtongroup.com , email info@penningtongroup.com, or call 972.980.9857.
