* A bill passed by both chambers to “fix” the so-called “Amazon Tax” may have some unintended consequences for one of Chicago’s most famous tech companies…
llinois is poised to re-impose sales taxes on some Internet purchases, seven months after the state’s so-called Amazon tax was struck down by the Illinois Supreme Court.
Brick-and-mortar retailers hailed the move while online firms expressed dismay.
“It’s obviously extremely disappointing,” said Brian Littleton, president and CEO of Chicago-based ShareASale.com Inc., a provider of affiliate marketing network software. He said firms that started offering coupons again in Illinois since October’s ruling will again be forced to leave the state or shut down.
This time around, he said, it could affect Chicago’s Groupon Inc., which started offering coupons last fall. A Groupon official said in an email that “we are indeed looking closely at the implications of the law for our new Freebies business.” […]
When Illinois first enacted its Amazon tax, hundreds of Web marketerssuch as Coupon Cabin moved from Chicago to Indiana or Wisconsin, and hundreds went out of business after roughly a thousand retailers nationwide stopped doing business with some 9,000 Illinois-based affiliated websites offering coupons or promotional codes.
* Groupon’s stock is falling because of this bill…
Shares of Groupon Inc. (GRPN_) are down -4.74% to $5.60 after it was reported that an Illinois sales tax law originally targeting Amazon.com (AMZN_) could be brought back after it was struck down by the state’s top court.
Groupon has been struggling for a while, however. From TheStreet…
We rate GROUPON INC (GRPN) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover.
The company’s weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.
* But retailers have been suffering as well because of untaxed online competition…
Brick-and-mortar retailers, which are left with pricing challenges when their e-commerce counterparts are not taxed, naturally welcomed the move. Rob Karr, president of the Illinois Retail Merchants Association, had this to say about the proposed law: “This legislation is another step in leveling the playing field for brick-and-mortar retailers along with residents of Illinois who are being unfairly penalized for purchases made out of the state.”
The sales tax immunity that Internet retailers currently enjoy has been subject to criticism by traditional retailers, who argue that it puts them at a distinct disadvantage. Amazon, by far the biggest beneficiary of this tax exemption, has accumulated a huge customer base by offering prices that are lower than traditional retailers’.
Best Buy Co Inc (BBY), which has strategized its turnaround plan around a price-matching policy, has been quite vocal about this “discriminatory” tax policy. Hubert Joly, the French veteran leading the electronic retailer’s turnaround, said that he did not think the government should “pick the winners.” Speaking at the Economic Club of Minnesota, Joly disagreed with the government’s policy to “subsidize” Amazon and eBay, and said that the former enjoyed an 8-10% price advantage over brick-and-mortar retailers as a result of this tax exemption.
After Florida imposed a sales tax on Amazon last month, it became the 21st state to collect taxes from the electronic giant. According to research from Ohio University, Amazon lost an estimated 9.5% of revenues in the states where taxes were enforced on the company, as customers switched to those online retailers that were not required to pay taxes. The research does suggest that this exemption of sales taxes creates a slanted retail environment that provides an unfair advantage to online retailers.