Seattle recently passed a controversial “Amazon tax,” targeted towards reducing the homelessness that has become an epidemic across the city.
This has been one of multiple new tax initiatives taken against Amazon and global e-tailers, and may have some consequences for the company, its stock, and its profitability. The issue itself is a complex one, which has had both supporters and detractors.
Seattle has experienced a massive cost-of-living increase in recent years, in large part due to the large number of employees Amazon has brought into the city. Amazon has been growing so substantially throughout Seattle, that it has altered the landscape of property renting and purchasing. Apartment listings are favoring employees of companies such as Amazon, Google, and Microsoft. Costs are being driven up by the need for new housing.
At the same time, Amazon has continued to develop its business in Seattle, bringing in more employees. As these employees displace those who are already in Seattle, it makes the homelessness problem worse. Today Seattle has the 6th worst homelessness problem in the United States. It is narrowly beaten out by Los Angeles County. In the past eight years, the number of homeless in Seattle has doubled.
Seattle’s Amazon Tax has also become known as a “Head Tax.” This Head Tax will assess new taxes on large corporations per employee. It is estimated that businesses will be charged approximately $275 per head. This tax is going to be used to fund housing for the homeless — and it isn’t limited to just Amazon, though Amazon is by far one of the largest businesses in the city.
This has proven to be controversial, as many view it as threatening Amazon for its success. Some argue that Amazon has brought in jobs to Seattle, thereby improving its economy and real estate values; those who are business-focused see this as a socialist move to tax Amazon for providing employment. Ultimately, these individuals argue that Amazon may simply move their headquarters out of Seattle, which could to significant economic backlash.
For some time, Amazon sales were not taxed. Sales tax is generally collected only if a company has a physical presence within a state, which Amazon did not have in many. Some states do not collect taxes for goods sold through the Amazon marketplace by third parties, and Amazon itself has historically paid very little in federal taxes due to its lack of actual profit.
It has been argued that the e-commerce giant has become too big to tax, and even the President of the United States has questioned Amazon’s tax bill. Therefore, there are multiple entities currently at odds with Amazon regarding the taxes that are paid and the taxes that should be paid.
Amazon’s stock fell to $1,576.12 on May 15th, 2018. However, it is still hovering at historical highs. In reaction, the company has halted some of its developments in Seattle, though it is continuing a small project in the city. Amazon’s stock has such tremendous value at the moment that it isn’t likely to be a good buy, especially given the uncertainty and pressure that it’s now feeling. Those who believe that the stock market may be headed towards a crash or correction may want to hold off on any new Amazon purchasing or trading.
At the same time, Amazon isn’t likely to be a good sell either; it’s estimated that Amazon may outpace Wal-Mart in sales within the next three years. There may still be some significant room for growth there, even if the organization has to shift its headquarters or make adjustments for further taxation.
Amazon wasn’t the only business affected by Seattle’s new Tax. Seattle’s own Starbucks is also going to feel the impact. However, Amazon is unique insofar as it is currently being accosted by multiple tax measures. It remains to be seen how this is going to impact the company’s bottom line. Amazon has notoriously had difficulties maintaining its profit margins, even as it brings in strong amounts of revenue. These tax issues may have some interesting ramifications.
Regards,
Ethan Warrick
Editor
Wealth Authority
