Amazon.com, Inc. (AMZN): The Great Debate

Amazon’s recent sales trends also cast doubt on the proposition that sales-tax avoidance is not important for most Amazon customers. Amazon.com, Inc. (NASDAQ:AMZN) began collecting sales tax in Texas, Pennsylvania, and California in third-quarter 2012. Sales growth in North America immediately dropped off, from 36% in second-quarter 2012 and 35% in third-quarter 2012 to 30% in fourth-quarter 2012 and 26% in first-quarter 2013. Moreover, this may understate the drop-off in Amazon’s retail sales growth rate, because Amazon reports all the revenue for its rapidly growing cloud services business — Amazon Web Services — in the North America segment.

Foolish conclusion
The correlation between Amazon’s increased sales tax collection and the recent slowdown in sales growth does not definitively prove causation; other factors may have played a role. However, this evidence strongly suggests that consumers will cut back on purchases at Amazon.com, Inc. (NASDAQ:AMZN), eBay, and other online-only retailers in favor of Wal-Mart Stores, Inc. (NYSE:WMT), Best Buy, and local businesses if the sales tax playing field is leveled.

The only potential benefit for Amazon is that smaller online retailers would have a harder time complying with the law, and some might be unable to compete with Amazon. Even that benefit is offset to the extent that many of these smaller online retailers have been contributing to the growth of Amazon’s highly profitable third-party “marketplace” program. In combination with Amazon’s stretched valuation, the risks associated with the Marketplace Fairness Act provide a good reason for investors to remain wary of Amazon stock.

The article Will Amazon Really Benefit From an Internet Sales Tax? originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Fool contributor Adam Levine-Weinberg is short shares of Amazon.com. The Motley Fool recommends Amazon.com and eBay. The Motley Fool owns shares of Amazon.com and eBay.

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