E-fairness has been in the news recently, and there are a lot of takes, a lot of numbers, and a lot of opposing arguments.  As an independent business, Bookworks supports this sales tax legislation, and since it's a topic not everyone's well-versed on (and I've had practice explaining it in detail to Congressman Heinrich and a staffer of Senator Udall's), here's as brief a primer as I can create:

For a bit of background:  Way back in 1992, when we all had dial up modems, and the only computer experience I had was this fantastic point-and-click game called The Manhole, the Supreme Court ruled on something now referred to as the Quill decision.  This prevented states from imposing use taxes on retailers without a physical presence in their state - basically, it protected catalog sales.  Now that e-commerce is an impressive force, online retailers like Amazon.com and Overstock.com use this case to avoid collecting sales tax in states in which they don't have a physical presence (and this is actually a little more complicated - as a Slate.com article points out:

"...Amazon has physical operations in 17 states in which the company and its employees enjoy the fruits of local taxes—police and fire protection, roads, hospitals, and other infrastructure that make its operations possible. Yet Amazon skirts tax collection in most of these places through clever legal tricks. For instance, it has incorporated its warehouses and Web site as separate legal entities in order to argue that it doesn't really have a presence in Nevada, Texas, and other states. The Kindle offers another example of that strategy—the e-book reader was developed at Lab126, an Amazon office based in Cupertino, Calif. But that office is actually a legal subsidiary, freeing Amazon of collecting any taxes in California."

(Let me just say that while I dislike the overall attitude of that article, the information is excellent). 

Okay, another example of tricky accounting by a large corporation for financial gain.  So what can we do about it, given the Quill decision?

You've probably seen affiliate links on most sites now - even Bookworks offers the arrangement.  In this relationship, sales from web traffic directed from a site receive a small commission.  Currently, 38 states have pending legislation that would consider an affiliate to constitute physical nexus in a state, allowing it to collect sales tax from that online retailer.  Colorado, New York, Rhode Island, and North Carolina have all passed legislation redefining nexus, and Arizona has it coming up this year.  Last January, Rep. Eleanor Chavez introduced a bill in New Mexico that would do exactly the same thing here.

Obviously, the sales tax break is attractive for many consumers, but here's the problem: this loophole gives companies like Amazon an unfair price advantage over indie businesses like Bookworks, and even over big-box stores that offer bricks and mortar spaces in Albuquerque.  Technically, you're even supposed to pay a use tax on merchandise purchased out-of-state, but this is largely unenforceable - so Amazon has a significant advantage over local businesses that do support our community.  We simply want to level the playing field.

Additionally, this University of Tennessee study estimates that New Mexico will lose about $120 million in revenue from online purchases in 2012.  This year, we had a significant budget shortfall, and there's currently legislation proposing a $3.9 million cut to arts funding (the Western States Arts Federation (WESTAF) released the results of a study showing that $1M of NMArts grant funding to NM public and non-profit arts and culture organizations had a return of approximately $63M to our state economy).

It's important to note that once states like Colorado started considering affiliates a physical presence in the state, Amazon fired them all - it's fighting hard to keep from paying sales tax.

Eventually, we'll have to recognize that, as Gayle Shanks of Changing Hands says: a sale is a sale, and tax on all online purchases should be collected remitted to our state. 

Finally - if you didn't feel like reading all of that, here's a video explanation of some of the many problems with Amazon, including sales tax issues: 

 

Views: 12

Tags: Bookworks, business, e-fairness, efairness, independent, independent_business, sales_tax

Comment by Not A PC Kinda Guy on March 8, 2011 at 10:23am
Interesting. I'm always supportive of local business. I have to ask if publishers and authors are so badly hurt by Amazon, then why do they continue to do business with Amazon? There must be enough of a return on volume and marketing advantage to offset the downside.
You have a similar argument for local grocery chains, cooperative or not, where one sells an item for $2.99 and the exact same item is selling at Walmart or Costco for $1.79 ... personal economics drive business for the same item to the lower price if the buyers income is low. The 7.00% tax in Albuquerque on non food / non exempt items is substantial for low income people. On a $20 item its $1.40.
Comment by Bookworks on March 8, 2011 at 11:10am

You're absolutely right.  Publishers make plenty from the volume of Amazon sales - and authors do well with traditional books, and some do extremely well with self-published e-books in the Kindle store.  Ultimately short term, the lower price would seem to harm no-one, but as many local writers represented by large publishers can attest to, there's less and less support of midlist or debut authors, and ultimately reliance on just a few high volume retailers is impacting the variety of books published, marketed, and available for a reader to choose.  Additionally, although we're unclear on what terms publishers offer books to Amazon at, they're increasingly in a position to demand a higher and higher discount (actually, the effect this has on product quality was explained really well in Barry Lynn's Cornered: The New Monopoly Capitalism and the Economics of Destruction).  Additionally, many publishers are pretty unhappy with Amazon now using their books as loss leaders (to be fair, Wal-Mart got in on that price war last year too - remember the $9 books?).

I'm sure I'm not addressing everything, and I'm a little non-linear, so I'll try to do that later or in another post soon - but it's really interesting to look at numbers at indiecityindex.com - although big-box stores often receive subsidies from city governments thinking it'll foster job creation, if consumers simply shifted 10% towards buying from independents, a city of 1 million people (Grand Rapids, MI is the example that's been used) would create 1600 jobs - although I can't find the numbers of big-box store job creation atm (looking!), it's a significant win for the indies.  Not to mention that the amount of money that stays in the local economy is significantly more than at a big-box or online retailer (out of $100 - $45 stays when shopping at an independent, $13 at a big-box).

 

So - yes.  Publishers do well with Amazon, but I'd argue that it's promoting discount culture and that's why we're seeing the pricing problems we are with e-books (another thing to explain in more depth), and that it's essentially devaluing their product in the long-run, and forcing them to rely only on commercial bestsellers/celebrity memoirs/etc.  Nothing's wrong with those books, but no one wants to lose less-popular-but-valuable writing, either.

 

Of course, none of that really has to do with e-fairness; that's simply something that might allow more bookstores to continue to survive.

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