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Will South Dakota Sales Tax Hit Amazon (AMZN) Revenues?

Zacks

With budget deficits staring down most state governments, there is an ongoing drive to collect sales taxes that have been successfully avoided for nearly two decades.

Online retailers such as Amazon.com AMZN were not bound by statute to collect sales taxes on behalf of state governments, except in certain cases. So consumers gained every time they shopped online. This privilege will now be withdrawn, at least for shoppers in South Dakota.

Governor Dennis Daugaard said that starting Feb 1, Amazon will start collecting state and local sales tax from customers in South Dakota. This will put an end to the cost benefit that Amazon has been enjoying over brick-and-mortar retailers in the state.

The news came on the heels of the announcement made by Amazon to collect sales tax on few states namely Utah, Iowa and Nebraska.


However, it is definitely a big win for the state government, which is heavily dependent on sales tax collection in the state.

Daugaard said during his speech to the Republican-held Legislature on the opening day of the 2017 legislative session that though Amazon’s decision to collect sales tax doesn't solve the sales tax issue for online purchases, it's a big step in the right direction.

Over the last one year, shares of Amazon have been steadily treading higher. The stock has returned 28.97% compared with the Electronic Commerce industry’s gain of 24.49%.

Outlook

Amazon has been taking various measures to avoid sales tax collection because thatwould increase the price of items sold on its website. This is likely to impact results initially as consumers will reduce purchases until they get used to the higher prices. A significant long-term impact is unlikely, in our view.

South Dakota will be the 30th U.S. state where Amazon will be collecting sales tax from customers.

Zacks Rank & Stocks to Consider

Currently, Amazon has a Zacks Rank #4 (Sell). Better-ranked stocks in the industry are Itron, Inc. ITRI and Mercadolibre, Inc. MELI sporting a Zacks Rank #1 (Strong Buy) and Cognex Corporation CGNX carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Itron delivered a positive earnings surprise of 30.55% on average in the past four quarters.

Mercadolibre delivered a positive earnings surprise of 23.58% on average in the past four quarters.

Cognex posted a positive earnings surprise of 24.92% in the trailing four quarters.

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