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A new report says that web taxes drive consumers to shift spending to competitors and bricks-and-mortar merchants.
Online shoppers spend less with Amazon.com Inc. in states where the e-retailer must collect sales taxes, according to a report from researchers at Ohio State University. Competing retailers, meanwhile, absorb some of that lost spending, the report says.
Amazon collects sales taxes in 20 states, according to the brand new Internet Retailer 2014 Top 500 Guide, released this week. Research that focused on five of those states—California, New Jersey, Pennsylvania, Texas and Virginia—found that taxing online purchases led to a 9.5% drop in the value of products bought by households from Amazon. Sales tax rates in those states range from 5.0% to 8.2%.
The total amount spent with Amazon, No. 1 in the 2014 Top 500 Guide, in those states decreased by 2.8%, says the report, “The ‘Amazon Tax’: Empirical Evidence from Amazon and Main Street Retailers.” Those five states enacted online sales taxes in 2012 and 2013.
The report also found that:
• For orders costlier than $150, consumers in those taxing states have decreased their Amazon spending by 15.5%. For orders of $300 or more, spending has declined by 23.8%.
• The overall likelihood of consumers shopping at Amazon in any given week has declined by 0.7 percentage points. The number of transactions per week dropped 4.2% after taxes were enacted.
• Consumers in those states have shifted spending to other retailers in the wake of new taxes. Other online retailers experienced a 23.7% increase for purchases of more than $300; the report analyzed purchases from 25 top retailers listed in Stores magazine to arrive at that conclusion. Overall, online purchases from Amazon’s competitors increased 19.8% after tax collection started.
• Local bricks-and-mortar retailers also benefited from online sales taxes, gaining a 2.0% increase in sales.
“We conclude, to a small degree, [that] tax legislation achieved its objective of restoring retail activity to local communities, though most of the gains in ‘leveling the playing field’ are garnered by the online operations of retailers,” states the report, written by Ohio State University finance professor Itzhak Ben-David and finance doctoral students Brian Baugh and Hoonsuk Park.
Though other e-retailers face having to collect sales taxes under various state laws—Overstock.com Inc., No. 31 in the Top 500, has aggressively opposed the spread of web sales taxes—the levies typically go by the moniker “Amazon Tax.” That not only acknowledges the scope of Europe and North America’s largest online retailer—the new Top 500 Guide shows a 20.3% year-over-year sales increase for Amazon in 2013—but the tendency of such taxes to hit Amazon purchases hardest of all, either directly through its e-commerce site or via affiliates that take commissions for Amazon purchases stemming from their blogs.
Consumers residing in the states in which Amazon collects sales tax comprise nearly 60% of the U.S. population, according to a recent estimate from global supply chain and logistics consulting firm MWPVL.
Amazon, judging the direction of the wind and speeding to expand its fulfillment network, has thrown its support behind a federal Marketplace Fairness Act. It would allow states to mandate sales tax collection by online and catalog retailers even if they have no physical in-state presence such as stores or distribution centers—a legal concept known as nexus. Current federal law says states can mandate tax collection only by retailers with an in-state physical presence such as stores or distribution centers. Overstock and eBay Inc. oppose the bill, which remains before the U.S. House of Representatives.
Amazon has negotiated deals with various state officials to build more fulfillment centers near major cities—part of the e-retailer’s push to get quicker deliveries to more shoppers—and those deals have often involved Amazon promising to support the Marketplace Fairness Act or a delay in state sales tax collection.
Amazon offers no comment today about specific parts of the new sales-tax report. A spokesman for the e-retailer says: "As analysts have noted, Amazon offers the best prices with or without sales tax." The Ohio State study provides no speculation on what Amazon might to do make up for the diminishing advantage of not having to collect sales taxes. At least one recent supply chain and Amazon fulfillment expert has said the e-retailer will have to raise the bar on its service, perhaps through more same-day e-commerce deliveries.