Amazon.com 2002 Annual Report Download - page 24

Supreme Court's position regarding sales and use taxes on Internet sales. If any of these initiatives
addressed the Supreme Court's constitutional concerns and resulted in a reversal of its current position, we
could be required to collect sales and use taxes in states other than Washington and North Dakota. The
imposition by state and local governments of various taxes upon Internet commerce could create
administrative burdens for us and could decrease our future sales.
Various countries are currently evaluating their VAT positions on e-commerce transactions. Recently,
for example, the European Union (""EU'') enacted a directive requiring that businesses in non-EU
countries selling digital products and services to EU resident consumers collect and remit VAT in the
country of the consumer's residence. This directive will become eÅective on July 1, 2003, will result in
additional VAT collection obligations and administrative burdens and may decrease our future sales to
customers in the EU. Future VAT legislation or changes to our business model may have similar impacts.
We Source a SigniÑcant Portion of Our Inventory from a Few Vendors
Although we continue to increase our direct purchasing from manufacturers, we still source a
signiÑcant amount of inventory from relatively few vendors. During 2002, we purchased over 10% of all
inventory purchases from a single vendor, Ingram Book Group. No other vendors account for over 10%.
We do not have long-term contracts or arrangements with most of our vendors to guarantee the availability
of merchandise, particular payment terms, or the extension of credit limits. If our current vendors were to
stop selling merchandise to us on acceptable terms, we may not be able to acquire merchandise from other
suppliers in a timely and eÇcient manner and on acceptable terms.
We May Be Subject to Product Liability Claims if People or Property Are Harmed by the Products We
Sell
Some of our products, such as toys, tools, hardware, computers, cell phones, and kitchen and
houseware products, may expose us to product liability claims relating to personal injury, death or property
damage caused by such products, and may require us to take actions such as product recalls. Certain
businesses and individuals also may sell products that may indirectly increase our exposure to product
liability claims. Although we maintain liability insurance, we cannot be certain that our coverage will be
adequate for liabilities actually incurred or that insurance will continue to be available to us on
economically reasonable terms, or at all. In addition, some of our vendor agreements with our suppliers do
not indemnify us from product liability.
We Could Be Liable for Breaches of Security on Our Web Site and Fraudulent Activities of Users of
Our Amazon Payments Program
A fundamental requirement for e-commerce is the secure transmission of conÑdential information
over public networks. Although we have developed systems and processes that are designed to protect
consumer information and prevent fraudulent credit card transactions and other security breaches, failure
to mitigate such fraud or breaches may adversely aÅect our operating results.
The law relating to the liability of providers of online payment services is currently unsettled. In
addition, we are aware that governmental agencies have investigated the provision of online payment
services and could require changes in the way this business is conducted. We guarantee payments made
through Amazon Payments up to certain limits for both buyers and sellers, and we may be unable to
prevent users of Amazon Payments from fraudulently receiving goods when payment may not be made to
a seller or fraudulently collecting payments when goods may not be shipped to a buyer. Our liability risk
will increase if a larger fraction of our sellers use Amazon Payments. Any costs we incur as a result of
liability because of our guarantee of payments made through Amazon Payments or otherwise could harm
our business. In addition, the functionality of Amazon Payments depends on certain third-party vendors
delivering services. If these vendors are unable or unwilling to provide services, Amazon Payments will not
be viable (and our businesses that use Amazon Payments may not be viable).
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