President Donald Trump is taking aim at Amazon,com Inc. (AMZN) once again with an executive order calling for a task force to study the U.S. Postal Service, which Trump claims Amazon exploits like an underpaid "delivery boy." Are Trump's criticisms of the online retailer spot-on ... or just "fake news"?
Here's what the experts told TheStreet.
A Longtime Feud
First, Trump has been fighting with Action Alerts PLUS holding Amazon since before the 2016 election, blaming the online giant for a host of ills. However, this recent tweet spells out most of his criticisms:
I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!— Donald J. Trump (@realDonaldTrump) March 29, 2018
Some news sources claim that Trump is targeting Amazon because CEO Jeff Bezos also owns the Washington Post, which has carried articles critical of the president and is famous for the Watergate coverage that drove Richard Nixon from office.
But that doesn't mean Trump's claims are false. Let's check out the accuracy of his allegations:
Claim No. 1: Amazon Is Hurting the U.S. Postal Service
Trump has blamed Amazon for losses at the USPS, alleging that the company pays too little for the high volume of packages that it has the post office deliver.
In his executive order Thursday creating a task force to study the post office's problems, he wrote that "the USPS is on an unsustainable financial path and must be restructured to prevent a taxpayer-funded bailout." And in an apparent reference to Amazon, the president called for the study group to "conduct a thorough evaluation of the operations and finances of the USPS, including ... the expansion and pricing of the package delivery market and the USPS's role in competitive markets."
However, experts say that Amazon and other online retailers actually help the post office's finances a lot through their shipping activities.
For example, figures show that the postal service's shipping-and-packaging business grew nearly 12%, or $2.1 billion, in the 12 months ended Sept. 30. By contrast, mail volumes (i.e., letters and marketing material) fell by some 5 billion pieces, or 3.6%, during the same period. And that's just the latest in a multiyear decline in marketing-material and letter delivery, according to the USPS.
Brian Nowak of Morgan Stanley wrote in an April 4 research note that he doesn't believe Amazon's contract with the USPS is unprofitable for the post office, as the president seems to claim. "Amazon and the USPS have a mutually beneficial relationship and the USPS needs Amazon's volume to 1) cover its highly fixed-cost structure and 2) service its outsized pension," Nowak wrote.
He added that the 2006 Postal Accountability and Enhancement Act prohibits the USPS from taking on unprofitable business. And Nowak wrote that the post office's latest annual audit found that the USPS's non-mail delivery contributed profit "well in excess of minimum threshold levels."
Greg Melich of MoffettNathanson added in a separate note that USPS shipping revenues grew more than 50% — or $7 billion — over the five years that Amazon and the post office have been working together. That allowed total USPS revenue to grow to $70 billion, Melich wrote.
And UBS wrote in its own note that former Postmaster General Patrick Donahue "unequivocally stated" during an expert call that the bank hosted "that the AMZN contract is profitable for the USPS."
Conclusion: Trump is wrong.
Claim No. 2: Amazon Pays No State or Local Taxes
Technically speaking, it's consumers rather than retailers who "pay" sales taxes. Retailers are simply conduits that are supposed to collect sales taxes from shoppers and remit the money to the relevant tax authorities.
It's true that Amazon didn't always originally collect sales tax as it was building itself into a retail powerhouse over the past two decades. That's because Web retailers don't have to collect sales taxes unless they have a physical presence in a state where a buyer lives, which Amazon didn't initially have outside of its Washington State home.
Matthew Gardner, a senior fellow with the Institute on Taxation and Economic Policy, added that Amazon aggressively fought off calls for years that it start collecting such taxes. Avoiding collection of this money for that long gave the company a huge advantage with shoppers and greatly disadvantaged bricks-and-mortar retailers, he said.
But Diane Yetter of the Sales Tax Institute said that Amazon now collects sales taxes on transactions with customers in the District of Columbia and all 45 states that charge such levies. That's because Amazon either has physical locations in those jurisdictions (the legal standard as to whether online retailers must collect sales tax) or has agreed to voluntarily collect them anyway on so-called "direct" sales.
Direct sales are those when a customer buys a product directly from Amazon. However, the company's Amazon Marketplace hosts thousands of third-party vendors that sell new or used products directly alongside Amazon's regular offerings. Generally speaking, Amazon doesn't collect taxes on those sales.
The exceptions are on sales for third-party vendors in Washington and Pennsylvania, which have "marketplace facilitator laws" requiring the marketplace provider, such as Amazon, to either collect and remit sales taxes to the states or provide notice to the customers that they owe sales tax to the states. Amazon collects sales taxes for the two states on any third-party purchases.
The White House declined to clarify which goods Trump's tweet referred to, but Morgan Stanley's Nowak guessed it had to do with state sales taxes not collected on Amazon Marketplace sellers. About half of Amazon's revenue sales come from such "small- and medium-sized businesses," according to Amazon.
That said, Amazon isn't necessarily supposed to collect state sales taxes on such purchases. That's because most states can only legally collect taxes on sales when a third-party vendor has a physical presence or "substantial agents or activities" within the same state where the purchaser lives. If you live in New Jersey and buy some jelly from a small vendor in Oregon, then New Jersey sales taxes don't apply.
Conclusion: Trump is partly right and partly wrong.
Claim No. 3: Amazon Is Putting Traditional Retailers Out of Business
Experts say there's definitely some truth to Trump's contention that Amazon is "putting many thousands of retailers out of business" — but the situation is much more nuanced.
Much has been written about the so-called "Amazon effect" on bricks-and-mortar retailers, in which Amazon takes away sales and ultimately drives some stores under.
It's true that consumers are happy to forego paying sales taxes on purchases when they can, which helps Amazon and hurts traditional stores. In addition, not doing business out of bricks-and-mortar locations saves Amazon substantial operating costs like rent, property taxes and on-site retail staff.
But experts say plenty of bricks-and-mortar businesses have faltered in recent years for other reasons as well. For instance, the number of U.S. malls grew more than twice as fast as the nation's population did between 1970 and 2015, leaving the retail industry "overstored," according to Cowen & Co. research.
In addition, experts say that some retailers failed to embrace e-commerce quickly, allowing customers to migrate away from bricks-and-mortar stores and onto online shopping via computers and smartphones.
And lastly, some retailers were so "off-point" with their inventory that they turned consumers away for good. For example, retail consultant Michael J. Berne said Kmart (a subsidiary of Sears Holdings Corp. (SHLD) ), could have cornered the urban lower-income market but didn't offer the right merchandise mix and ceded that business to Target Corp. (TGT) .
So, yes, Amazon, has had a major effect on bricks-and-mortar retailers and sped up some weak ones' demise, industry experts say. But in many cases, bricks-and-mortar retailers did themselves in.
Conclusion: Trump is partly right and partly wrong.
Before You Go
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