Dive Brief:
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A study from Ohio State University delved into the effects of sales taxes on consumer spending patterns on Amazon and other retailers in 19 states. The results are largely unsurprising, but they do provide a snapshot of the advantages Amazon enjoys in states that don’t require sales taxes and of the opportunities available to competitors.
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Shoppers spent 8.3% less on products on Amazon once a sales tax was charged, with lower income households more likely to hold off on purchases and higher-income households less affected by it. Bigger-ticket items costing $250 or more were more affected by the inclusion of a tax, while non-tax collecting competitors often won some of Amazon’s business once Amazon had to collect tax, the study found.
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Interestingly, Best Buy, which does collect tax in all instances, picked up some of Amazon’s business once tax was collected at Amazon, suggesting that consumers may value the option of having physical stores nearby when they make a bigger-ticket purchase.
Dive Insight:
For years, retailers were dismayed by Amazon’s tax-free advantages, and have long argued for a more fair playing field when it comes to online sales-tax collection. But efforts to require online retailers to collect state sales taxes have not been able to pass the U.S. House of Representatives, largely because of a general anti-tax sentiment there. Because of a series of court rulings, the only retailers obligated to collect state taxes on Internet orders are those with a physical presence in those states.
Although the online sales tax issue is known as the “Amazon tax” and is seen as a one reason that Amazon was able to disrupt the retail industry, Amazon has long thrown in the towel on the issue, letting Congress know that it’s fine with the situation either way. That may be because Amazon has established more fulfillment centers nationwide, making it subject to sales tax collection in those states—which is now nearly three quarters of the U.S.
Like state “tax holidays,” the “Amazon tax” is not a huge driver or deterrent of overall sales, but this study shows that it has significant effects on some households, such as lower-income ones, and on some purchases, such as bigger ones.
