Amazon's Struggle with New Tax Laws in California

Amazon's Struggle with New Tax

Laws in California

Presented to:

Paul Nisener, Vice President

Amazon.com Inc.

Prepared by:

Submitted: January 15, 2011

TABLE OF CONTENTS

TITLE PAGE........................................................................... i

TABLE OF CONTENTS............................................................. ii

MEMO OF TRANSMITAL.......................................................... iii

EXECUTIVE SUMMARY............................................................ iv

INTRODUCTION..................................................................... 1

Background...................................................................... 1

Business Problem................................................................ 1

BODY/DISCUSSION/ANALYSIS.................................................. 3

Severing Ties with "Click-Through" Affiliates............................. 3

Education Pamphlet Educating CA Residents.............................. 4

Building Fulfillment Centers in CA.......................................... 4

CONCLUSION......................................................................... 6

RECOMMENDATIONS.............................................................. 7

REFERENCES..........................................................................9

MEMORANDUM

DATE: January 15, 2011

TO: Paul Nisener, Vice President

FROM: Bryce McKendry, Brian Kimble, David Tran, Hieu Nguyen

SUBJECT: Amazon's Struggle with New Tax Laws in California

________________________________________

Amazon.com, being one of the largest e-tailers in the world, has made the company a target for California legislators who wish to modify current laws that govern how out-of-state online retailers are not required to collect sales-tax for purchases made in California. Legislators wish to modify these current laws by making connections between Amazon and its "click-through" affiliates in California. The state sees this as a chance to collect up to 200 million dollars in tax revenue. This report's purpose is to present several possible solutions and recommendations for this impending situation in California.

Our group has done much research on our company as well as other online retailers who will be affected by these changing tax laws. The solutions and recommendations that we are presenting are aimed at allowing Amazon to continue selling its products on-line to residents of California, without having to collect sales-tax, which would effectively raise all prices by close to ten percent. These recommendations include: severing ties with "click-through" affiliates in California, educating consumers in California on the proper methods of tracking and paying required state taxes for purchases made in the previous year, and offering California an incentive to delay the implementation of its new tax law.

The four members of this group look forward to presenting this report to you and other senior managers at Amazon. We would like to schedule this presentation immediately, as our solutions are time sensitive. Please contact us at 714-870-6222 if you have any further questions or to schedule a specific day and time for this presentation.

EXECUTIVE SUMMARY

Purposes of the Report

This report is intended to analyze a current problem facing Amazon.com. The problem involves the state of California trying to pass legislation that will require Amazon to begin collecting sales tax for all orders shipped to California.

Amazon.com Inc.

Amazon, founded by Jeff Bezos in 1994, set out to become the world's largest online bookstore, which could directly compete with, and beat the prices of its brick-and-mortar competitors. Amazon quickly grew to become the world's largest online retailer of electronics, apparel, home goods, toys, DVDs, CDs, MP3s, and countless other categories of items. One way that Amazon is able to offer prices below that of its competitors is by designing a system where its warehouses only operate out of a handful of states. This enables Amazon to extend between a five and ten percent discount in price by not collecting state sales tax for states in which they have no physical presence.

Currently, the state of California is developing a new system of taxes that will force Amazon to begin collecting sales tax for all orders shipped to California. Legislators are claiming that by doing business with "click-through" affiliates in California, Amazon forfeits its protection provided by the 1992 U.S. Supreme Court "Quills" Decision, which allows it to avoid collecting state sales tax.

Recommendations to Avoid Losing Competitive Edge and Revenue in California

Here we present several recommendations that Amazon must immediately implement to avoid losing revenue and customers in California. These steps will ensure that Amazon retains its position as a dominant online retailer who is able to beat the prices of its brick-and-mortar competitors. The recommendations are as follows:

1. Write a press release immediately informing Amazon customers and affiliates of changing policies in California.

2. Sever ties immediately with all "click through"