by Tom Taulli | December 10, 2013 10:05 am
Since the company was founded in the mid-1990s, a key competitive advantage for Amazon (AMZN) has been its exemption from sales tax. The exemption meant AMZN could get an edge on pricing against brick-and-mortar operators like Barnes & Noble (BKS), Walmart (WMT) and Target (TGT).
As a result, Amazon CEO and founder Jeff Bezos was relentless in his legal fight to maintain the exemption — and it has been a driver for the AMZN stock. But lately, Bezos has mostly given up on this.
The good news: It’s not something Amazon stock investors should fret about.
The death blow for the sales tax fight came last week thanks to a U.S. Supreme Court ruling. The Supreme Court rejected an appeal from a New York court. The court had ruled that AMZN must pay sales tax (and ironically, the decision came down on Cyber Monday). In light of this decision, it is likely that even more states will began to levy a sales tax on e-commerce operators. After all, there is a huge need for new sources of revenue.
Despite all this, investors do not seem to be worried, as seen with the negligible impact on AMZN stock. That’s because Amazon has already been transitioning to a world where the sales tax would be a reality.
To this end, AMZN was able to get some interesting concessions in various states, such as incentives to set up fulfillment centers. These will help to not just soften the impact, but also allow faster delivery times and better service. No doubt, such things have been critical for the success of AMZN stock.
Besides, Amazon now has a global brand and a huge customer bases. And by fighting hard to maintain the sales tax exemption over the years, AMZN stock has certainly benefited nicely. For the most part, it helped to build the company’s reputation for being a source of great discounts.
But with its massive scale, Amazon should be able to maintain its low-cost strategy even without the sales tax exemption. Heck, even if prices increase somewhat, it probably will not matter too much. Consumers have become accustomed to e-commerce, especially because of the convenience and quick shipping … and AMZN is the already the biggest name in the game.
In other words, the removal of the sales tax exemption will probably not mean much for AMZN stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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