It was actually even smarter than that. People also forget about "media postage" rates that existed at the time. (They still exist, just fyi)
In 1999. To ship a book using media mail cost of $1.13 for the first pound and $0.45 for each pound up to 7lbs. It got cheaper per pound above that.
This meant even heavy books were relatively cheap to ship. Way cheaper than random goods.
Wasn’t one of Amazon’s biggest advantages over brick and mortar stores the fact that you could effectively avoid sales tax for a lot of the purchases?
I heard that's why Washington state was chosen. Close to tech talent (Microsoft was there) and fewer people living there than other tech-heavy states such as California, so the US tax-exempt market was larger from Washington state.