Amazon.com Inc. will begin collecting sales taxes from Minnesota customers next week, ending a cost advantage it’s enjoyed over brick-and-mortar retailers in the state.
The news also triggered a mystery.
Online-only retailers don’t need to charge sales tax in Minnesota unless they have physical presence or affiliated business here. Monday’s revelation led to speculation that Amazon may open a warehouse, data center or some other operation in the state or buy an existing firm.
The company was vague about what prompted the change, though it said it “will be required” to do so starting Oct. 1.
“We’re considering various opportunities and plan to expand in Minnesota,” Ty Rogers, an Amazon spokesman, said in an e-mail.
Retail analysts said the most likely reason is that Amazon is quietly building a distribution center from which to roll out same-day delivery in the Twin Cities.
“They could have one right now being built, and we wouldn’t know about it, as crazy as that sounds,” said Gene Munster, an analyst with Piper Jaffray & Co. in Minneapolis. “But that could be hard to keep quiet.”
He added that there could be more mundane reasons. Amazon could be opening a corporate office or expanding Amazon Web Services, its cloud computing operation, in the state. “They could have a warehouse here in Prior Lake that is just filled with servers,” Munster said, using the suburb south of Minneapolis as a random example.
Amazon went to lengths last year to avoid collecting sales taxes last year in Minnesota. The Seattle-based company cut ties to Minnesota-based affiliates — such as bloggers, deal sites and online reviewers — just before a new state law in July 2013 required online merchants to collect sales taxes if they had such affiliates in the state. Before then, Amazon paid those people and businesses a commission for sales resulting from links to its website.
Amazon had made similar moves in about 10 other states in order to avoid collecting sales taxes. But it does currently collect sales tax in 21 states, including Wisconsin, in which it has a physical presence such as a fulfillment center or corporate office.
On Monday, Myron Frans, the state’s revenue commissioner, didn’t provide any hints as to what Amazon has up its sleeve.
“We are pleased that they are planning to expand in Minnesota, and we would defer to Amazon any specific questions about the change or its plans,” Frans said in a statement.
Two of Amazon’s biggest competitors — Minnesota-based Best Buy Co. Inc. and Target Corp. — have been vocal proponents of a proposed federal law that would allow states to collect online sales taxes even if those companies don’t have a physical presence in that state.
Best Buy CEO Hubert Joly has been increasingly vocal on the issue in the last several months, making it a key talking point in speeches, including one before the National Governors Association over the summer. He and others argue that lawmakers should level the playing field by making online retailers collect sales taxes in the same way retailers with physical locations do.
For its part, Amazon has come out in support of such a federal law as long as it is across the board. Amazon’s Rogers said the company is not worried about losing a cost advantage. “Amazon offers the best prices with or without sales tax,” he said.
Minnesota officials have said that federal law, if passed, would net Minnesota about $400 million a year.
A spokesman for the state Revenue Department did not have an estimate for how much Amazon would collect in sales taxes in Minnesota once it begins doing so next month.
Munster, the analyst with Piper Jaffray, noted that Amazon now collects sales tax on more than half of its sales as it’s expanded into more states.
“The next chapter of e-commerce is going to be same-day delivery and groceries,” he said. “What’s more important then: lower taxes or better services?”
Amazon has been rolling out same-day delivery to more cities this year and is now in about a dozen places right now. It also is testing a grocery delivery service called Amazon Fresh in three cities.
While it’s been leading the pack on same-day delivery, other retailers have begun to test those waters, too. Minneapolis-based Target began testing such a service in June in three metropolitan areas, including the Twin Cities.
Wal-Mart has also rolled out a “To Go” same-day service in five markets, and Google and eBay have been dabbling in this area, too.