President Trump has made his thoughts on Amazon very clear a number of times in the past, but his most recent tweets earlier this week gave the strongest indication yet that the rhetoric may turn to action against the ecommerce juggernaut. Amazon’s share price was down 5% on Monday following his latest tweet about the marketplace, this time taking aim at their commercial deals with the United States Post Office.
Whilst there’s no doubt an all-out war between POTUS and Amazon could spell bad news for investors, if you’re a 3P seller on Amazon you’re probably more worried about what (if any) impact it could have on your business.
To help you make sense of it all, we’ve put together a guide to what’s really going on, and how it might affect you and your Amazon business.
What’s Trump’s beef with Amazon?
Whilst he may have ramped things up in the last few days, Trump has made no secret of his disapproval with the way Bezos captains his ship for a while now.
Much of his focus this week has been on Amazon & the US Post Office, but in the past he has also accused Amazon of tax dodging and media manipulation through the Washington Post which Amazon founder Jeff Bezos personally bought in 2013.
Let’s look at each of these issues in more depth:
#1 Accusations of tax avoidance
The issue:
Amazon sellers using FBA may be well aware already of the complicated and poorly understand concept of the tax nexus and how it applies to Amazon sellers.
Different American states have different tax laws when it comes to sales tax for purchases made online. The federal law those states can only charge the retailer sales tax if they have a physical presence in the state.
Because Amazon has a physical presence in all states, it pays sales tax on all first-party sales anyway. The issue is with 3P sales, which Amazon does not taxes on behalf of.
How does it affect you?
As a 3P seller, Amazon does not collect sales tax for you and many sellers assume they don’t have tax nexus status in any other state than the one that they operate out of, but for FBA sellers simply having your products warehoused in an Amazon Fulfilment centre may mean you have a tax nexus in that state.
As an FBA seller you’ve probably been asked to send your products into fulfilment centres all across the country, and they change with every inbound shipment you raise. Combine this with Amazon’s own redistribution of your inventory across state lines and you can see how it can be very difficult to figure out which states you have an active tax nexus in, not to mention working out what to pay them and how.
What could change?
At the moment, most FBA sellers don’t do anything about sales tax unless they are doing a significant volume of sales, and I’m yet to here of a case where a small-time seller has been hung out to dry for not paying it.
That being said, it’s always wise to play on the right side of the law. Despite Trump’s tweets, no actual policy intention has been declared by himself or the administration, so we shouldn’t expect too much to change soon, but the complicated tax nexus issue has been a point of confusion for sellers long before Trump got involved.
Under the current system sellers that do take steps to ensuring they are sales tax compliant are at a disadvantage whilst those that don’t are at risk, so any change to the collection process whether instigated by government intervention or by Amazon being proactive could potentially make things a little easier for sellers and level the playing field should Amazon pick up the slack and collect sales tax on behalf of 3P sellers.
What you don’t want to hear as a 3P seller is news that they will be taking steps to enforce state sales tax on 3P sellers but the heavy lifting of determining your own tax nexus and tax rates will fall to the sellers alone, as unless you have a dedicated accounting resource on your team, it can be a real pain.
The United States Postal Service
The issue:
Through FBA, Amazon’s warehousing and delivery arm has become as integral a part of their business model as their marketplace. A big part of that success is there reliance on USPS to complete their ‘last mile’ deliveries; around 40% of Amazon deliveries are shipped to a USPS distribution centre who fulfil the last leg of the shipment to the customers door.
Amongst dwindling enthusiasm for snail mail and with some 2006 changes to their pension policy the USPS have been on a downward spiral of increasing losses in the billions. The only ray of sunshine to come through has been the package delivery side of operations, which account for nearly 30% of their revenue. It’s not publicly known how much of that is from their commercial agreements with Amazon, but it’s a lot.
The question is whether or not the USPS is getting a good deal out of the arrangement or if Bezos is taking them for a ride. By law USPS can’t be providing the service for less than cost, so it’s at least a break-even situation, but considering Amazon’s significant bargaining power and demonstrated ability to build out their own infrastructure if necessary it’s a good bet that they are getting a pretty good deal commercially.
There is an argument to be made that Amazon is a business and that negotiating deals that benefit them as much as possible is what good businesses do, so if the USPS isn’t getting a good deal the finger should be pointed at Congress since – as a government regulated operation – they can only charge what is allowed and approved by them.
How does it affect you?
Whether right or wrong, if Amazon is getting cheaper delivery through USPS then some portion of that saving is likely being passed on to either you as a seller or the customer through lower delivery fees and lower FBA fees.
What could change?
Given enough pressure it’s possible that the USPS and congress could mandate a higher charge for package delivery through the Postal Regulatory Commission, but considering that the USPS mandate isn’t actually profit focused, but service focused – so providing low-cost delivery that improves the performance of the sector and keeps prices down for customers could be argued is achieving exactly what the USPS exists to do.
Despite this, the USPS’ original charter doesn’t mean much if the will of congress is to make more per delivery, so an increase is possible. If that happens then the cost of deliveries for Amazon will increase, which will most likely be reflected in FBA fees, but the change should be minimal enough that it won’t negatively impact your bottom line too much and applied uniformly to all sellers so it won’t hurt your competitive positioning.
Bezos’ Ownership of the Washington Post
Trumps battle with the media has been highly scrutinised, and it has been noted by some commentators that there may be a link between Trump’s criticism of Amazon and the link between Amazon and The Washington post.
Whilst this one has the least potential to impact your 3P Amazon business, Trump’s limited legal options to attack the Washington Post/Amazon connection head on may be the catalyst behind his war against the way Amazon does business, and with Amazon firmly in his sights there is always the possibility that it could further develop into actual policy decisions which may affect your Amazon business.
Overall, whilst there is potential for impact on your Amazon selling business if Trump’s anti-Amazon sentiment turns into real policy implementation, the road from here to there is a long one and the fallout for sellers isn’t like to being anything more than a slight rise in your costs of doing business on the marketplace. White House Spokeswoman Lindsay Walters has clarified already that there are no ‘actions at this time’ being made against Amazon so for now at least, any changes are hypothetical.
Our advice? Don’t stress it in the short term, but it’s definitely a space to keep an eye on for further developments.