ABA Responds to New Republic's "In Defense of Amazon"

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Last week, a piece by The New Republic Senior Editor Ruth Franklin entitled “In Defense of Amazon” was posted on the magazine’s website. Spurred in part by a piece on the online retailer by Colin Robinson that had appeared earlier in The Nation magazine (“The Trouble With Amazon”), Franklin’s piece questioned many of Robinson’s assertions, examined to what extent Amazon.com might – or might not – be contributing to the problems publishers currently face, and ended by noting, “... to Jeff Bezos and everyone else who brings books to the world I say: thank you.”

In her piece, Franklin noted, “Amazon is a quintessential capitalist enterprise, and it cannot be faulted for exploiting the free-market system that, for better or worse, we have embraced,” as long as "Amazon’s practices fall within the bounds of what regulation we have." It was especially on that point ABA CEO Oren Teicher wanted to respond.

On July 30, in a letter submitted to the editor of The New Republic, Teicher wrote, “Ms. Franklin notes that Amazon is merely playing by the rules of a free market. I disagree. A free market works on the premise that winners and losers are chosen by consumers and that competitors play by the same rules and regulations. It also assumes that a state or the federal government does not favor one business over another.” However, in the online retailer’s case, Teicher noted, “as Amazon continues in its obstinate refusal to meet its corporate responsibility to collect and remit state sales tax in the overwhelming majority of states where collection is required, it is, in effect, being subsidized by state governments and their citizenry.”

Pointing out that this year an estimated $18.6 billion in sales tax will go uncollected, and with an estimated $23 billion annually going uncollected by 2012, Teicher wrote, “Amazon’s business practice of sales tax avoidance is siphoning away critical funding for essential – and underfunded – state services.”

Noting that Amazon has “acknowledged that its refusal to collect sales tax provides an important strategic advantage” over its competition, Teicher wrote that “Amazon has gone to great lengths to maintain this status quo. In some states that have passed legislation that makes clear Amazon’s obligation to collect sales tax, the company has fired affiliates to avoid complying, and in states in which Amazon has warehouses and distribution centers it argues that these critical links in its supply chain are separate companies.”

However, Teicher argued in his letter that “to the residents of states losing millions of dollars in sales tax revenue, the realities are clear: A colossal, dominant company has again decided that the rules everyone else plays by don’t apply to them.”

Letter to the Editor of The New Republic

7/30/10

To the Editor,

The New Republic Senior Editor Ruth Franklin covers a lot of ground in her thoughtful piece on Amazon.com (“The READ: In Defense of Amazon”). While there are points on which I would differ (I'd argue that we are actually beginning a new era of great indie booksellers, one in which readers like Ms. Franklin can have books hand-selected for them in bookstores, as well as on store websites or via Facebook and Twitter), I think there's one important aspect of Amazon.com’s business strategy that bears closer scrutiny.

Ms. Franklin notes that Amazon is merely playing by the rules of a free market. I disagree. A free market works on the premise that winners and losers are chosen by consumers and that competitors play by the same rules and regulations. It also assumes that a state or the federal government does not favor one business over another. However, as long as Amazon continues in its obstinate refusal to meet its corporate responsibility to collect and remit state sales tax in the overwhelming majority of states where collection is required, it is, in effect, being subsidized by state governments and their citizenry.

This year an estimated $18.6 billion in sales tax will go uncollected, and it’s estimated that by 2012 states will be losing at least $23 billion annually, based on conservative estimates. Because sales tax revenues comprise up to a third of most state budgets, Amazon’s business practice of sales tax avoidance is siphoning away critical funding for essential -- and underfunded -- state services.

Amazon has acknowledged that its refusal to collect sales tax provides an important strategic advantage over both online and bricks-and-mortar retailers that comply with state laws, and Amazon has gone to great lengths to maintain this status quo. In some states that have passed legislation that makes clear Amazon’s obligation to collect sales tax, the company has fired affiliates to avoid complying, and in states in which Amazon has warehouses and distribution centers it argues that these critical links in its supply chain are separate companies. And perhaps to a well-paid corporate lawyer they are, but to the residents of states losing millions of dollars in sales tax revenue, the realities are clear: A colossal, dominant company has again decided that the rules everyone else plays by don’t apply to them.

Sincerely,
Oren Teicher, CEO
American Booksellers Association