Tax-free Amazon shopping ends for Californians


Despite a strong holiday season of sales of their tablets, Amazon's stock dropped 10 percent on Tuesday.


Spencer Platt

The online retailer Amazon has lost one battle in the ongoing war against sales tax. Starting Saturday, residents in California will be forced to pay state sales tax of up to 9.75 percent on their online purchases, reports AP.

Amazon has long resisted charging its customers sales tax, which is a huge incentive for people to do their shopping online. But in 2011, Amazon came to an agreement with the California legislature to start charging the tax on customers. The agreement had a one-year grace period that expires Saturday. 

Shopper John Purlia told AP the tax deadline prompted him to finally buy a Samsung flat-screen television.

"I know I'm going to be back at Amazon before Saturday looking to take advantage of this," he told AP. "It's like the final days of a sale."

Amazon's online model means it doesn't have to stock and maintain a physical store, and up until now, didn't have to charge sales tax. 

Wired magazine reports that means Amazon can usually offer its products for about 10 percent less than brick and mortar stores. Amazon's price advantage is especially sharp for low-weight, high-cost electronics such as smartphones, e-readers and digital cameras. 

AP reports that California lawmakers complained that the tax-free model was depriving the state of millions of dollars in much needed revenue. 

Amazon resisted charging taxes, claiming it was not obligated to because of a 1992 U.S. Supreme Court ruling that prohibits states from forcing businesses without a physical presence in the state to do so.

It may be a blow to consumers who enjoy buying their items tax free, but for Amazon, it was a small concession in an otherwise growing business model. 

Instead of fighting the case further, Amazon decided to open up a physical presence in California that will allow them to ship products to California customers even faster, coming ever closer to the holy grail of same-day shipping. 

The New York Times reports that Amazon is building a million-square-foot warehouse in Patterson, CA that will deliver millions of products to customers 85 miles away in San Francisco.

It is hundreds of miles closer to those consumers than Amazon’s existing centers in Nevada and Arizona. By moving its warehouses closer to customers, Amazon will be able to reduce its delivery times. 

Jeff Bozos, Amazon's chief executive, told the New York Times that it can cut as much as a day off its two-day shipping times and move the retailer closer to that elusive same-day shipping. 

“We want fast delivery,” Bezos told the newspaper. At a minimum, “we can work on making it the next day.”