Everybody in the wine world felt something when Amazon.com announced in October that it was canceling its plan to sell wine. Wine lovers and small wineries gnashed their teeth while retailers, distributors and wine.com popped corks.
At the time, everyone (including the Wall Street Journal) thought it was because of the maze of state regulations.
I learned this week of an issue completely unrelated to wine that had far greater repercussions for the world's largest internet retailer: sales tax. Not just on wine, but on everything.
Currently Amazon collects sales tax for only five states: Kansas, Kentucky, New York, North Dakota and Washington. It gets away with not collecting sales tax in the huge California market because it has no brick-and-mortar shop here.
However, in order to ship wine from California -- which was the plan -- Amazon would have had to open a retail outlet to comply with state law. Wine.com has one in Berkeley for exactly this reason. (Wine.com also has a shop in New York that's so obviously for legal requirements that it will not take cash.)
The problem is, once that California store was open, even if it was only 100 square feet with two items for sale, Amazon the company would have become a California retail shop for the purposes of state tax law, and would have had to start collecting sales tax on everything sold in the Golden State.
One of the main reasons Amazon is so attractive to consumers is its low prices. Adding 8.25% to the price of everything in California would eliminate much of that. The company calculated that the profit it made from selling wine nationwide wouldn't offset the potential loss of business from California alone.
Moreover, the sales tax issue would quickly have compounded. Once cash-strapped state legislatures in Florida and Texas and everywhere else realized California was collecting sales tax from Amazon, they would have reached for their share of the pie.
It's easy to say Amazon could have sold only wines from Washington and New York -- where they're already collecting sales tax -- and Oregon, which has no sales tax. There are some great wines from those states, but how big is the market for them? Amazon doesn't like to lose, but in this case, it would never have been the go-to wine website, not when consumers could go to wine.com and buy brands they already know.
Amazon's wine initiative is dead for now. But keep an eye on the California budget crisis, which is becoming like the never-ending TV show "24." (There's a bomb! A virus! A mole! How can we survive the hour!) There has been a lot of opposition to imposing sales tax on websites because the Internet industry is so important here. If that position ever changes, and Amazon has to start collecting sales taxes anyway, wine lovers might get an unexpected benefit.