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Amazon's 4th Quarter: The Wait is On

  • Jan 17, 2013 | Gail Cole

 Same Day Delivery: It Would Change How We Shop.

Market watchers are eagerly awaiting January 29th, 2013, the day when Amazon.com will announce its fourth quarter results. What inquiring minds want to know? Were the online retailer's profits significantly impacted in California, Texas, and Pennsylvania, where it began collecting sales tax last year?

The fourth quarter is an important one for retailers. Beginning October 1, it encompasses the holiday season -- the time when many retailers finally turn a profit. After all, "Black Friday" (which takes place in the fourth quarter) is so named because, according to legend, that's the day many retailers finally get to record a profit and use black ink in their books. Losses are marked in red ink.

The Giant Humbled?

More than one market analyst is predicting a decline in sales for Amazon during the fourth quarter of 2012.

Scot Wingo, ChannelAdvisor CEO, looked into the impact of sales tax on Amazon third party sales. He writes, "We dug into our data warehouse" (which only includes clients, who are Amazon third party sales) to "index Amazon sales trends in California vs. other states." The data indicated the following:

  • A spike in California sales in the week prior to September 15, 2012 (when Amazon started collecting sales tax in California);
  • A dip in sales (of 5-10%) around early November;
  • A further dip in California sales as opposed to other states; and
  • Recovered sales towards the end of the holiday sales period.

Reuters quotes Wingo as saying that "Amazon's tax collection in California had the most impact on fourth-quarter sales of more expensive items priced at $200 to $250.

While Amazon's sales may have dipped, Best Buy reported "better-than-expected holiday sales… ." Anne Zybowski, Vice President of retail insights at Kantar Retail, notes that "… any narrowing of Amazon's price advantage at the margin is important because Best Buy brings service and other shopper benefits to the category." For example, Best Buy will remove your old television if you buy a new one, and they'll send the Geek Squad to customer's homes to install new products. A valuable service, indeed, for the non-geeks of the world.

Sales Tax Isn't Everything

There are some who argue that the imposition of sales tax on Amazon's sales doesn't really matter, at least not that much. Ken Sena of Evercore Partners says he "still sees usage trends remaining in Amazon's favor."

Amazon may be collecting sales tax in more states, but it is also expanding its presence. The more distribution centers it has, the faster and less expensively it can deliver its products to customers. As an article in Slate points out:

"Amazon is investing billions to make next-day delivery standard, and same-day delivery an option for lots of customers. If it can pull that off, the company will permanently alter how we shop. To put it more bluntly: Physical retailers will be hosed."

Maybe they will and maybe they won't. Maybe Amazon's fourth quarter results will show a profit of $310 million, and maybe they'll show a loss of $490 million. Predicting Amazon's fourth quarter sales is a lot like predicting who will take home an Oscar. There is plenty of speculation, but in the end, we all just have to wait and see.

photo credit: Johan Larsson via photopin cc

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.