Sunday, July 17, 2011

Why online products are cheaper. Should they be?

Image representing Amazon as depicted in Crunc...Image via CrunchBase
I recently read an article about, and it's quite disgusting.,0,1556564.column  Apparently, the reason online products are cheaper is that online retailers aren't charging a sales tax. 

I always thought that the reason that they were cheaper was that they didn't have the overhead of a brick and mortar store and related costs.  But not paying a sales tax is quite a big deal as well.  According to the article, and logically, a lot of the strong brick and mortar stores like Best Buy are tanking because they have to charge taxes, and thus more than online retailers. 

Some states, in order to right the balance, and increase tax revenue, are trying to right the balance.  California said that, because Amazon had associated groups in the state, Amazon needed to charge the sales tax.  Due to a supreme court ruling years ago, no state can make a company pay sales tax unless the company has a presence in the state.  These associated groups in California are web site owners that put a link to Amazon on their site, and get a small percentage of any purchases made by people buying after following a link from the site.   

Amazon disallowed all of these small businesses in the state of California from continuing, costing many their livelihoods.  Additionally, they have set up a ballot measure to decide the issue in the state of California.  In other states, Amazon has had to go to court to decide the issue of whether to pay or not.  I love this quote from the article.  "In court, Amazon would have to painstakingly muster credible legal arguments and present them to a judge who, more often than not, is no fool. In a California ballot campaign, one can try to mislead voters by deploying half-truths, outright lies and flagrant deceit. Lie to a judge, and you might end up with a stiff fine for contempt and maybe jail. Lie to the California electorate, and you might win an election. Amazon hasn't ruled out challenging the California law in court, and it might do so if the referendum fails."

This was a revelation to me personally.  I've always thought that reducing representative democracy and increasing direct decisions by the people would be better.  Instead of having elected representatives make laws, the people should be able to vote themselves on each measure.  Or so I thought. 

But thinking about it, the people have little time to learn and study about each measure, and in any decision involving two or more views, whichever group has the most money gets the most opportunities to persuade the voters, and will usually win.  Someone that is paid to actually look at each issue, and is educated regarding pertinent legal issues, and hopefully has some kind of objectivity, might be better able to decide these things. 

I guess we'll see what happens at the end of the day in California.  Hopefully though, online retailers will end up paying taxes just like everyone else.  The idea that tax rates are way too complex over thousands of locations ends up being a little silly in my opinion because... well, Wal Mart, Best Buy, and a lot of other mega chain retailers can do it.  Why can't Amazon?  The information about all of the varying tax rates may be easily compiled by a fairly small business and made available for a few dollars a month. 

It may end up costing me more, but it's unfair that online retailers have this advantage, and I'm sure it does end up costing employment, and has for a couple decades. 
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