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January 17, 2013

Frequently asked questions about our California Amazon Tax post...

On Jan 12, we posted some insights into the potential impact of Amazon being subject to California sales tax in this post.

Since then we've had a bunch of common questions from sellers that I started answering individually and now we've had enough, I wanted to get them 'out there' as it seems the original post wasn't as 'ahem' clear as it could have been:

 

Q: What does the chart show again?

A: For Amazon 3P sales over the 8/1-12/31 timeframe we indexed the sales shipping to California against sales in other states in the USA.   1 on the chart is the 'neutral point' - meaning the sales in Cali are growing at the same rate as the sales in 'other states' as a group.  If the sales are above 1, Cali is over indexing, below 1, under indexing.

 

Q: Is this Amazon first party sales?

A: No, all of our data is third party (see the SSS primer in the last question)

 

Q: If this is Amazon third-party sellers, did they all get California sales tax as well?

A: No, most third parties on Amazon have their own tax nexus that they input into Amazon.  Amazon does the tax calculations on that using the 3P nexus map, not their own.

Q: If this is 3P and 3P don't all have California sales tax nexus, why does it look this way?

A: Another way to ask this question is - wow, why would you see any change at all because you would think that since most 3P's don't have nexus in Cali, they would not see this.  

To answer this, you have to think of the mindset of an Amazon buyer.  Amazon has such a strong brand that in our experience it acts as an umbrella for 3Ps.  In fact many Amazon buyers don't realize (even though it is 100% clear) they are buying from a 3P.  Therefore we saw what normally would seem like irrational behavior - people stockpiling pre-California taxes from 3Ps who don't/won't charge sales tax in Cali.  We have  no way of knowing if the Amazon 1P reaction was the same, more, less, but we did think this trend was interesting and worthy of sharing because we get asked by customers all the time: "Now that Amazon is subject to sales taxes are they slowing down as an e-commerce channel?"

Q: What % of Amazon's business is this?

A: I refer you to our SSS details that gives some background on our SSS data, methodology and why we think this is interesting for customer (retailers) benchmarking, but not an attempt to predict the future of Amazon.

Q: Why do you think this trend is representative of what is happening in Amazon's 1P business?

A: We are not saying this trend is representative of what is happening in Amazon's 1P business.  The whole purpose of the exercise is to help 3Ps understand the impact of new tax nexus states on Amazon's growth rate.  Over the long run, they are neutral to positive.  In the very short run they are positive (the blip) and then negative for 1-4 months.  The only way we'll find out about Amazon's 1P business is when they post results for Q4 on January 19th (we'll have full coverage!).

Q: If Amazon is collecting tax for all 3Ps in California, shouldn't eBay be doing the same?

A: Only Amazon 1P is subject to California tax plus any 3P's that have California nexus (which Amazon can collect on their behalf).  eBay also has the capability to collect tax on behalf of 3P's with California nexus.

Scot Wingo wrote this post.  He is the CEO of ChannelAdvisor where eBay is an investor.

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