His argument still valid. What if on a $500 item, amazon has the same price as your local store, or maybe even amazon price is higher than your local store by $10, free shipping. But at your local store, you get hit with 7% sales tax, you are still going to buy from amazon, right? But now what if amazon had to charge the same 7% sales tax? Now you will buy locally, no brainer.
The fact is if amazon had to charge sales tax, their revenue probably will drop by at least 20%, which would probably push their earning into the negative, considering they are on a razor-thin margin currently.