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Amazon.com A History and Evolution of Business & Technology September 2008 Rich Prem V.P. of Indirect Taxes/Tax Reporting Amazon.com [email protected] (206) 266-2708 Emmett O’Keefe Director, U.S. Public Policy Amazon.com [email protected] (202) 347-7390 1 In The Beginning…

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amazon com a history and evolution of business technology september 2008

Amazon.comA History and Evolution of Business & TechnologySeptember 2008

Rich Prem

V.P. of Indirect Taxes/Tax Reporting

Amazon.com

[email protected]

(206) 266-2708

Emmett O’Keefe

Director, U.S. Public Policy

Amazon.com

[email protected]

(202) 347-7390

1

slide6
On July 5, 1994 that man incorporated

Cadabra, Inc.

Cadaver, Inc.???

New Name!

Amazon.com, Inc.

we have grown fast
We have grown fast

1994

Incorporated July 5, 1994 - Originally named Cadabra, Inc.

1995:

11 employees

Website launches mid-1995

First warehouse opens (7,000 sq feet)

1997:

IPO completed

1 millionth customer

2008:

More than 70 million customers

7

outline
Outline

Amazon.com: an e-commerce technology provider and a retailer

The online retail market

Amazon Services

Biggest challenges to sales tax collection

Conclusion & suggestions

amazon com s mission
Amazon.com’s Mission

“Earth’s most customer-centric company, where you can find, discover, and buy anything online.”

overview of amazon s businesses
Overview of Amazon’s Businesses

Amazon’s Service Business consists of the following programs:

[email protected] and Marketplace

WebStore by Amazon

Fulfillment by Amazon

Amazon Payments

Amazon online retail business

Amazon is the seller of record for a broad range of new products, including electronics, computers, kitchen and house wares, books, music, DVDs, videos, cameras and photo items, software, computer and video games, cell phones, tools and hardware and outdoor living items.

slide12

Amazon Services – Leveraging Technology Investments(www.amazonservices.com)

12

amazon services leveraging technology investments www amazonservices com
Amazon Services – Leveraging Technology Investments(www.amazonservices.com)

13

overview of amazon s third party seller programs
Overview of Amazon’s Third-Party Seller Programs

Amazon’s [email protected] and Marketplace

Allows other businesses and individuals to offer their new, used and collectible products for sale on Amazon’s web sites.

Their products are fully integrated on Amazon’s web sites and are purchased by customers through a single checkout process.

Amazon is not the seller of record in these transactions.

Amazon is not responsible for fulfilling orders placed by the customer using the [email protected] programs.

Amazon earns fixed fees, variable fees, per-unit activity fees or some combination thereof for the services that it provides to the third parties.

Sellers who participate in the [email protected] program are businesses, generally medium or large retail sellers.

Sellers who participate in Amazon’s Marketplace program may be business entities or individuals, and some make only occasional, one-off sales, while others make regular sales out of their own inventory.

Amazon Marketplace is available on www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.fr, www.amazon.ca, and www.amazon.co.jp.

outline15
Outline

Amazon.com: an e-commerce technology provider and a retailer

The online retail market

Amazon Services

Biggest challenges to sales tax collection

Conclusion & suggestions

the fragmented state of the online sales environment
The Fragmented State of the Online Sales Environment

Highly Fragmented, a multitude of products being sold and business models used

Millions of small sellers

Thousands of search engines

Hundreds of marketplaces beyond "Amazon," "Craigslist" and “eBay”

Hundreds of online shopping carts and payment tools

Huge opportunity for small sellers to benefit from service providers’ economy of scale

online sales dominated by multi channel and small sellers
Online Sales Dominated by Multi-channel and Small Sellers

A significant portion of the Top 500 retailers are multi-channel.

Retail chain – nearly 40 percent

Consumer brand manufacturers – 14 percent

Catalogue/call center – 15 percent

Web only sellers - just over 30 percent

The current online market is largely comprised of two groups of sellers: multi-channel retailers collecting sales tax in most states and a large group of small retailers with limited nexus.

slide18
Millions more small sellers than originally thought.

Three Ranges of Seller Size

Top 500 (Region I)

Next 28,128 medium-sized Internet retailers (Region II) with revenues between $1 million and $10 million dollars, and accounting for $29.9 billion in annual sales.

At least 5 million small sellers (a conservative number, defined as those too small to measure activities at a unique web site) collectively accounting for $65.4 billion in 2004 annual sales (Region III).

The Long Tail is Longer than You Think: The Surprisingly Large Extent of Online Sales by Small Volume Sellers.”(2008)

Source, University of Maryland Smith School of Business

amazon sees opportunity in the tail
Amazon Sees Opportunity in the Tail
  • Amazon Services represents a significant investment in technology to help small sellers succeed online.
  • Technology diminishes the importance of scale as small sellers compete on the basis of things such as the scope of products offered and service.
technology allows small sellers to use ever more sophisticated tools
Technology Allows Small Sellers to Use Ever-More Sophisticated Tools
  • Manage your inventory
  • Automatically list and re-list items
  • Automatically send feedback
  • Monthly profit and loss reporting
  • Free Listing Designer
  • Print shipping labels and invoices in bulk
  • Calculate shipping and taxes – “it just takes a few minutes to set up shipping costs, sales tax, or value-added tax.” (Source: www.paypal.com).
outline22
Outline

Amazon.com: an e-commerce technology provider and a retailer

The online retail market

Amazon Services

Biggest challenges to sales tax collection

Conclusion & suggestions

overview of amazon s tax services offering
Overview of Amazon’s Tax Services Offering

Amazon\'s tax calculation engine ("tax engine") has been implemented to provide the functionality necessary to calculate US sales and use taxes for all fifty states (plus the District of Columbia) and thousands of related local tax jurisdictions.

Number of tax enabled merchants selling on Amazon.com: over 2,500, most are multi-channel retailers. Adoption has been slow amongst sellers with limited nexus.

The tax engine does not support the calculation of federal, state, or local product-based excise or similar gross receipt taxes (e.g., NJ special fur clothing tax). However, it does support the calculation of some taxes labeled as "excise" or "gross receipt" taxes, but that are commonly acknowledged as sales and use taxes (e.g., NM and HI).

The tax calculation results generated by the tax engine are not only dependent on the tax rules submitted by the seller and the logic built into the third-party rate engine software, but also dependent on the accompanying methodology used by Amazon to calculate such taxes. For instance, the third-party software does not decide how order-level promotions are allocated to the individual items in an order; Amazon\'s methodology does.

outline32
Outline

Amazon.com: an e-commerce technology provider and a retailer

The online retail market

Amazon Services

Biggest challenges to sales tax collection

Conclusion & suggestions

based on our experience offering tax services
Based on Our Experience Offering Tax Services
  • The cost and complexity is in the exceptions:
    • Tax Exempt Sales and Sales Tax Holidays
    • Customer Returns & Adjustments and Restocking Fees
    • Shipping and Handling Fees
    • Product Taxability Coding

(See appendix for more detail)

outline35
Outline

Amazon.com: an e-commerce technology provider and a retailer

The online retail market

Amazon Services

Biggest challenges to sales tax collection

Conclusion & suggestions

conclusion
Conclusion
  • There is growth in the long tail of small sellers.
  • Technological and market forces will compete to help small sellers if sales tax collection is required.
  • The Governing Board should encourage that process with additional simplifications to streamline collection.
amazon s suggestions
Amazon’s Suggestions
  • Further streamline transactions involving “exceptions” which represent nearly 60 percent of collection cost for small sellers.
    • - Consider a blended rate for small sellers
    • Provide additional vendor comp for small sellers
  • The Gov. Board should take actions to encourage the private market to develop technologies and tools to help small sellers. Setting a small seller exemption too high will only largely eliminate any incentive for developers of these services.
  • Actions the Gov. Board should take:
    • - Centralize and standardize the states’ rates and taxability databases.
  • - Follow the model of member states and establish an IT office to liaison with developers and small sellers and encourage the development of tools for small sellers.
  • - Establish standards for private certification of automated tax collection software.
sales tax holidays
Sales Tax Holidays

Tax Calculation requires date -- date is used by the external engine to determine applicable rates and rules.

Remote sellers generally charge tax at shipment using shipment date rules.

Without customization, items may be ordered during a tax holiday and quoted no tax, only to have the item shipped outside the holiday and charged tax.

No Holiday (8/7/XX)

12:00?

Holiday (8/14 - 8/17/XX)

12:00?

No Holiday (8/18/XX)

Not Ordered But Shipped

Ordered But Not Shipped

Order (quote)

8/7/XX

Backpack $50.00

Tax $ 4.00

Total $54.00

Shipment (sale)

8/16/XX

Backpack $50.00

Tax $ 0.00

Total $50.00

WINNER!!!

Order (quote)

8/16/XX

Backpack $50.00

Tax $ 0.00

Total $50.00

Shipment (sale)

8/21/XX

Backpack $50.00

Tax $ 4.00

Total $54.00

LOSER…

returns and restocking
States need to take uniform approach on the treatment of returns.

Retention of shipping & handling charges and imposition of restocking fees

California shipping and handling charges

Time limits

Connecticut (90 days of purchase)

Returns and Restocking
shipping handling fees
States need to take uniform approach to the taxation of shipping & handling charges.

Too many variations

Profit elements (“winners” versus “losers”)

Separately stated

Allocation methodologies (mixed taxability)

Type of carrier

Title passage

Caps and thresholds

Clothing (state differences, and general v. tax holidays)

Explainable and understandable to customers

Mail order catalog order form test

Shipping & Handling Fees
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