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US retailers have been pushing back against a recent congressional proposal that would enact a 20% tax on US imports.
Their concern is justified — the tax proposal would add an extra $ 15 billion to the total annual taxes paid by six major retail chains including Walmart, Home Depot, and Costco, according to RBC research cited by The Wall Street Journal. The implications for Amazon, however, are a bit more complex due to unique components of its business model.
- Half of the merchandise Amazon sells is through third-party vendors on its marketplace. Those sellers would have to pay the additional tax on their goods, not Amazon. Additionally, 37% of Amazon’s sales occur overseas, and would not be subject to the tax.
- Amazon also has a highly profitable business unit that would not be subject to the tax — its Amazon Web Services cloud computing arm generated $ 12.2 billion in net sales in 2016, with a 25% operating margin.
Amazon could still take a hit as the tax would likely decrease overall sales volumes and deter overseas marketplace sellers from selling to the US via the e-commerce giant.
- Higher import taxes could cause third-party vendors to drive prices up, which would decrease sales volumes on Amazon’s marketplace, and put pressure Amazon’s marketplace revenue from sales commissions and listing fees.
- Import taxes could deter foreign sellers from selling to US consumers, which could lead to decreased revenue at Amazon’s Fulfillment by Amazon (FBA) logistics service for third-party sellers. FBA has been a growing revenue source for Amazon, with the number of orders fulfilled through FBA growing 40% last year.
However, Amazon — and other marketplace players — would not be hurt as much by the import tax as legacy retailers that sell direct to consumers. That’s because marketplace providers have different revenue sources than traditional retailers. Marketplace providers make the majority of their revenue through services they provide to merchants on their marketplaces.
Traditional retailers make their revenue via the sale of merchandise. Faced with a new tax on imports, traditional retailers would have to either raise prices on goods they import from other countries — likely depressing their sales — or accept a lower profit margin on goods they sell. Given that retailers already have razor-thin profit margins, the vast majority would be forced to raise prices.
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