Senator cries tax tyranny as Amazon law moves forward

Retailers have long complained it’s unfair that online retailers don’t have to collect the same sales tax. Now that a proposed law is about to change that, politicians are warning it will hurt the internet economy.

A conservative Republican claims a plan that will allow states to tax online retailers is “taxation without representation” and that it will punish internet entrepreneurs.

Sen. Jim DeMint (R-S.C.) made the comments in the Wall Street Journal to oppose the Marketplace Fairness Act, a bill intended to curb the advantage that sellers like Amazon (whose large online sales led to the bill in the first place) and eBay have over traditional shops. Right now, the online retailers can sell cheaper because they don’t have to collect sales tax in states where they don’t have a physical presence.

The “fairness” argument appears logical and enjoys bipartisan support, but DeMint argues that it could lead to companies having to engage with thousands of state and municipal taxing authorities. He raises the example of a small business in South Carolina facing simultaneous audits from California, New Jersey and Hawaii:

The burden on Internet entrepreneurs could be staggering. There are already nearly 10,000 state, local and municipal tax jurisdictions to navigate nationwide.

DeMint’s arguments may be alarmist. The law, as it stands, would not apply to firms that sell less than $500,000 a year and lawmakers are also working to create a simplified method for sellers to collect tax across states. But DeMint also raises the interesting questions about how far internet-related taxes could be applied in the future: downloading taxes? a national online sales tax?

Despite opposition from DeMint and companies like Overstock, the law appears set to pass. Amazon itself, under pressure to pay from a growing number of states, endorsed the bill earlier this summer.

This means consumers who don’t live in New Hampshire, Oregon, Alaska, Montana or Delaware should get ready to pay more for online purchases.

(Image by Michael D Brown via Shutterstock)

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Amazon pitches better-than-ever cloud deals

Amazon is offering customers unprecedented deals to stick with its cloud services. Some big companies can get annual “true up” deals while many report incentives to use reserved, rather than on-demand, instances. And Amazon is making an effort to keep startups in the fold.

If you didn’t know better, you might think that Amazon Web Services is worried about the competition. Amazon, which makes a habit of cutting prices on its cloud services and offering all sorts of price options, is being more aggressive than usual in pushing customers to use and keep using its cloud services.

For example, the public cloud giant is pitching enterprise accounts with better-than-usual discounts if customers commit to long-term-use reserved instances for their workloads rather than the on-demand instance options, according to anecdotal reports. In some cases, it is offering unusual “true up” deals so large companies can out their Amazon spending over the course of their fiscal year. In a “true up” model, the customer pays an agreed-upon monthly price for anticipated usage. It may end up using significantly more or less capacity in that time but this model lets it settle up at the end of each quarter.

The company is “quietly offering up yearly pricing that allows clients to smooth out the bumps of the consumption model. [This is] attractive for large corporations with yearly locked-in budgets,” said an IT executive with a large Amazon customer. “[That means] no surprise spikes either up or down,” the exec added.

An Amazon spokeswoman had no comment, but the company’s usual stance is that it offers many pricing options to give customers a lot of flexibility. Use of reserved instances can be up to 71 percent cheaper than on-demand instances.

The push to get big accounts to commit to reserved instances for one or three year terms is not lost on Newvem, an Israeli startup that’s building its business monitoring customer use of Amazon’s cloud and making recommendations on best deployment options.

Nevvem will now offer a service to show users which of their instances should move to reserved instances, how much they will save or not save if they move, and how to move them, says Cameron Peron, the company’s VP of marketing and business development. A quarter of Newvem’s 500 customers could save from 35 percent to 50 percent of their current bill if they make the right choice, he said.

Amazon has always been competitive and continually cuts prices,  but the latest push comes at a time when cloud competitors are getting feistier and more numerous. The OpenStack cloud crowd, including Rackspace and Hewlett-Packard, are coming online and Microsoft Azure is adding more directly competitive infrastructure-as-a-service capabilities. Rivals say Amazon may be feeling the pinch — with profits under pressure while its plans to build infrastructure grow unabated.

SoftLayer, a Dallas-based competitor, says it’s winning customers like Appfirst and some gaming companies from Amazon. Donn Rochette, CTO and co-founder of Appfirst, said SoftLayer offers his company the ability to pair the scale of public cloud infrastructure and the ability to get dedicated servers for its work. And, in this case, SoftLayer ended up being less expensive than Amazon because it does not charge for data traffic flowing within its own cloud, he said.

Cloudant is working with SoftLayer, Joyent and Microsoft to provide a cloud database service that distributes applications across a global network of high-performance data centers. The company still runs on Amazon but has significantly lessened that dependence over time, largely because Amazon’s DynamoDB service competes with Cloudant.

Cloudant CEO Derek Schoettle’s nagging question is: If a customer is talking to Amazon, what kind of price concessions will it get to run DynamoDB and not Cloudant on Amazon infrastructure?

Others report that Amazon is also getting more aggressive about keeping startups in the fold as they grow. Amazon EC2 is the no-brainer infrastructure pick for any startup. But once those companies start to scale up, they all do the cost-benefit analysis of staying with Amazon or bringing IT in-house. Many opt to do the latter, said Jason Pressman, managing director of Shasta Ventures, a Silicon Valley VC that works with many of these small companies.

“I think Amazon’s picking its spots to be very aggressive and simultaneously rethinking its overall pricing and all of this is concurrent with what Rackspace, Red Hat, and Microsoft Azure is doing,” he said. Every one of those vendors wants to compete for that infrastructure business. That is fundamentally a commodity service so they all have to compete on price, he added.

Feature photo courtesy of  Flickr user Will Merydith.

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