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Alex Green

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The Writing on the Monitor: The Coming Death of Amazon.com

Posted: 08/12/09 06:54 PM ET

As the owner of an independent bookstore, there is no question that the Internet is crucially important to the survival of my business. It has become a facilitator for books like nothing in the history of humanity. The idea that e-books will replace paper books will simply never come true, but another negative impact of Internet bookselling is still an obsessive concern of mine. In the last two years, a monumental argument has arisen that will pit nearly every state in the Union against the world's largest online bookseller in ways that will forever alter business in the United States.

As of last May, Internet retailers only paid sales taxes in New York. Years ago, Eliot Spitzer pushed an Internet sales tax initiative through the New York state legislature. Amazon.com, the nation's largest online bookseller, panicked and did nothing. New York was too great a market and Spitzer too powerful an opponent. The law passed, setting a strong precedent for a long-overdue revision of the interstate statutes of the Commerce Clause of the Constitution.

Amazon then sued New York, figuring that the courts would overturn the law much faster than elected representatives of the people. They were wrong. The plan backfired and Amazon was ordered to begin collecting taxes. At the same time oil prices went through the roof.

With a margin of profit lower than the national sales tax average and countless Amazon Prime customers locked in at obscenely low shipping rates, Amazon founder Jeff Bezos saw the writing on the wall. He rapidly began seeking a way to avoid the third meltdown of his business in the last decade. He got out his Kindle, grabbed a list of vague numbers, jumped on a giant soapbox and tried to stave off the perception that his Kindle-fever was anything but panic. Then in June, Rhode Island passed a law following New York's lead. On Thursday, North Carolina jumped on board as well, passing a sweeping e-fairness law. Facing the greatest drop in tax revenue since the Great Depression, states across the country have decided that Amazon no longer needs its tax breaks.

Amazon has responded by dropping its affiliates in North Carolina and rattling a saber engraved with the motto, "We don't pay taxes." The problem for them is that other states waiting in the wings are more destitute and powerful than North Carolina. California charges sales taxes that are almost double the national average. With a titanic economy on the brink of near-anarchistic failure, broadly despised Governor Arnold Schwarzenegger is almost all that stands between Amazon and the tax man.

The consequences of enforcing a sales tax after such a lengthy period of legislative inaction, however, are devastating. Amazon simply cannot survive if it has to pay sales taxes. If nationally enacted today, enforced tax legislation would put at least $1 billion of Amazon's yearly operational costs and profits into state coffers. Under such pressure, Amazon would briefly comply and then collapse. Three weeks later you would find them on the nightly news, appearing before Congress for a bailout, "selling," as the poet Franz Wright says, "the emptiness of their own hands." Like the auto companies before them, Internet retailers used your roads, your government, and your tax subsidized infrastructure to support non-viable companies that killed your local businesses. Nothing in life, as the saying goes, is free.

The Kindle masks the fact that selling shares and peddling bogus sales numbers to dodge billions of dollars in taxes always has the same ending in America, punishing the poorest of people, who never bought into the scheme in the first place. The argument has nothing to do with whether or not your Kindle is pretty or the technology great. We are at the very beginning of what will be the first major online retail extinction and there is nothing that can take us away from the wreckage they will leave behind.