Amazon: Sales Tax Equals Sales Drop

Photo (cc) by Aurelijus Valeiša

Online purchases aren’t supposed to be exempt from sales tax. But in reality, few consumers end up paying taxes on items bought on the Internet.

Because of this, e-commerce sites like Amazon have enjoyed a competitive advantage over traditional brick-and-mortar retailers. That may soon change.

Congress is considering a new measure called the Marketplace Fairness Act, which would force online retailers with annual gross receipts above $1 million to collect sales tax. Some states already do this under so-called Amazon taxes, according to National Public Radio. Proponents say states could gain about $23 billion a year in uncollected sales taxes from online retailers.

Researchers at Ohio State University studied the impact of the online sales tax on online retail giant Amazon. The effect of the tax has been significant, though not that surprising.

In the five states – California, New Jersey, Pennsylvania, Texas and Virginia – the researchers studied, Amazon sales plummeted by 10 percent after the online sales tax was implemented, NPR said. For online purchases above $300, sales dropped by 24 percent.

So, where did those shoppers spend their money after pulling it from Amazon? According to Bloomberg:

Brick-and-mortar stores didn’t hugely benefit from households reducing their spending on Amazon. That’s because many shoppers simply turned to online alternatives.

In total, brick-and-mortar retailers enjoyed a 2 percent bump in purchases in states that introduced an online sales tax, while competing online retailers got a 20 percent increase, the study found.

Amazon has actually benefited indirectly from consumers looking to avoid the online sales tax. Bloomberg said:

The biggest sales uptick — 61 percent for big-ticket items — went to merchants that use Amazon Marketplace. These outfits pay Amazon a fee to offer products through the Amazon website, yet don’t collect taxes. The products are typically available alongside Amazon’s own listings.

The Marketplace Fairness Act passed the Senate, and is stalled in the House.

It seems that the bill is an important step in leveling the playing field for online retailers and brick-and-mortar stores. And the way it’s written, it would only impact online retailers that gross above $1 million, ensuring that smaller sellers won’t be hurt.

Would your online shopping change if you had to pay sales tax? Share your comments below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

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