Is Amazon Threatened by the Proposed Tax Bill in Arkansas?

Studying market data including diagrams, Inc.AMZN might have to drop one of its competitive strategies against brick-and-mortar stores in Arkansas if a proposal advanced by an Arkansas Senate panel on Wednesday is accepted.

Over the last one year, the stock has outperformed the Zacks Electronic Commerce industry. It has gained 51.19% compared with the industry's gain of 45.07%.

The Senate Revenue and Taxation Committee proposed that out-of-state companies that do not have any physical presence in Arkansas should collect sales tax if they exceed $100,000 worth sales or 200 separate sales transactions. The proposal will go before the full Senate on Thursday.

Taking Advantage of an Old Court Ruling

Amazon has been taking advantage of a 1992 Supreme Court ruling that bars states from forcing out-of-state sellers lacking a physical presence to collect tax.

Amazon even terminated contracts with its Arkansas-based affiliates back in Jul 2011 to avoid paying sales taxes from this state., Inc. Net Income (TTM), Inc. Net Income (TTM) |, Inc. Quote

What's Behind the Move?

Per The National Conference of State Legislatures, the state had to forego more than $23 billion in tax revenues from online and catalog sales in 2012.

Republican Governor Asa Hutchinson believes that the step could generate $32 million to $100 million of additional revenues. The state will enact a deeper income tax cut before the 2019 session.

To Conclude

The court ruling dates back to the pre-online shopping era. We believe that it lacks significance today when companies can sell at a place without having a physical presence.

Zacks Rank and Stocks to Consider

Amazon carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the broader technology sector include NVIDIA Corporation NVDA , Linear Technology Corporation LLTC and Intersil Corporation ISIL , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

For the current year, estimates for NVIDIA and Intersil have stayed unchanged while the same for Linear Technology went up 1.83% in the past 60 days.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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