Monday, September 05, 2011

Amazon's Blatant Bribery

Do I use/like Yes!
Do I think California taxes are too high? Yes!
Do I generally think businesses are taxed too much? Yes!
Do I think certain businesses should get special treatment? Absolutely not!

So it's unbelievable to me that Amazon would be so bold to try to "buy" a special tax deal from the state of California. Reuters is reporting that Amazon is offering up to 7,000 jobs if California drops its online sales tax for 2 years.

To me business/capitalism needs a level playing field where competition is key. The businesses are forced to compete by giving benefits to the end consumer of a better product or service. When businesses have an unfair advantage that skews the marketplace. In this instance Amazon has the ability to undercut brick & mortar businesses in California by about 9-10%. (Unbelievable state & local taxes are that high. We get so little for it too) This hurts a lot of small business too. And leads me to the point that is unseen by many. That of course is that large businesses have the unfair advantage of being able to negotiate special tax treatments or deals that small businesses just can't. They also have a vast team of accountants and lawyers that are able to expose the tax loopholes. Not withstanding a lot of the loopholes in corporate tax code is designed to be exposed by "privileged businesses" in privileged industries. The most notable example is all the special benefits and treatments for real estate & construction of late. (Not shocking a disproportional of resources & energy went to fueling that bubble) I feel strongly simplifying the tax code and yes, even reducing tax rates benefit business, job creation, and in particular small business. Many studies have proven that small business is the real driver of jobs, not larger businesses and especially not government.

A note to investors of Amazon. Be careful of the effects of these new tax laws on Amazon's bottom line. Margins are already thin and the share price is already at "explosive growth" valuation with P/E ratio of 92 based on the closing price on 9/2/11. Is Amazon an innovative company in retail & cloud computing? Yes. I will still continue to use them because I hate wasting time driving to the mall and shopping when I can do it from the friendly confines of home. This by no means is a recommendation to buy or sell AMZN. Just make sure to do your homework with this investment or other for that matter.

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