AMAZON AND THE COST OF ONLINE SALES TAX
A study by Fisher’s Itzhak Ben-David, Brian Baugh, and Hoonsuk Park
(pictured left) quantifies for the first time just how large a role sales
Focus: Finance; Online Retail
>> Read the study
taxes on online transactions play in consumer
spending. The study examined retail transactions on Amazon.com for
about 1.3 million households from Texas, Pennsylvania, California, New
Jersey and Virginia—states that began collecting tax on Amazon
purchases in 2012 and 2013. It concluded that:

After the introduction of the tax, Amazon sales fell 9.5
percent among these consumers

Consumer spending on Amazon purchases of more
than $300 decreased by 24 percent after the introduction of
the new tax
Additionally, the research identified a small increase in brick-and-mortar
store sales following the introduction of the sales tax on Amazon. In
addition, consumers sought out other online retailers that didn’t collect
sales tax.
■
NEWS OF ONLINE TAXES AN INVESTOR CONCERN
Legislation that would force retailers to collect sales tax on online
purchases might be seen as a boon for federal and state budgets, but what
does news of these new taxes mean for investors in these online retailers?
Focus: Finance; Online Retail;
Accounting
>> Read the study
A study by Fisher’s Jeffrey Hoopes (pictured left) and his colleagues Jacob
Thornock and Braden Williams, of the University of Washington, found
thatnews of impending sales-tax legislation has a measurable effect
on online firms and their investors. Stock returns for online retailers
dropped 0.7 percent more than expected on days when proposed sales tax
laws hit the news.
The research also noted that:

Around the times of these news events, stock analysts
forecasted about a 1.5 percent decline in projected future
sales revenue for online retailers as a result of potential
federal sales tax legislation

Stock returns for online companies already charging a
sales tax remained steady when proposed sales tax
legislation was in the news
■
FINANCIAL FRAUD PROTECTION AS SIMPLE
AS 1-2-3
Focus: Accounting; Information
Systems
>> Read the study
In an era in which financial scandals have toppled companies such as
Enron and WorldCom, has a reliable, cost-effective way to identify financial
reporting fraud been discovered? Research by Fisher’s Zahn
Bozanic (pictured left) and his colleagues suggests so, and has led to
a new way for financial regulators and investors to “red flag”
irregularities in financial statements faster and more efficiently than
ever.
The study produced a methodology to identify irregularities in financial
statements by examining how the numbers in these statements relate to
naturally occurring statistical properties. Relying on Benford’s Law to
examine recurrent numerical patterns in annual financial statement data,
Bozanic and his colleagues created the Financial Statement Divergence
(FSD) score to aid investors, auditors and regulators in quickly and
efficiently spotting irregularities in financial reporting.
The FSD score does not require forward-looking information and is
available to virtually every firm with accounting information. Further, this
new approach has no specific relationship to a company’s business model,
making it more difficult to fool and could lead to the unearthing of
undetected frauds in the U.S.
■
CONFORMANCE AND EXPERIENCE: A WIN-WIN FOR
HOSPITALS, PATIENTS
Focus: Health Care; Operations
Management
>> Read the study
What is patient experience and why should it be a focus for health care
facilities? Research by Claire Senot, Aravind Chandrasekaran and Peter
Wardof Fisher (pictured left), and Susan Moffatt-Bruce of The Ohio State
University Wexner Medical Center, shows that combining evidenced-based
medicine with an increased emphasis on patient experience can improve
clinical outcomes such as readmission rates in hospitals.
The study examined 3,458 U.S. hospitals over a six-year period and found
that hospitals that adopted high levels of conformance and patient
experience reported reduced 30-day re-admission rates. This improved
metric could translate to better quality of health upon discharge and
decreased penalties, per recent changes to reimbursement policies
through Medicare’s Hospital Value-based Purchasing Program. The study
also noted that:

The up-front cost of achieving high levels of patient
experience and conformance quality is $351 more per
patient discharge, due to increased operating expenses
such as training by hospitals

In defining patient experience, intangibles like
communication with caregivers and their attention to pain
management far outweighed environmental amenities such
as cable TV and meals
The research also suggested the increase in per-patient discharge could
decrease over time as combined quality in hospitals becomes standard.
Online retailers have advantage by not collecting sales tax
Published: 2014-04-23
Two independent studies use two very different approaches to reach the same conclusion: some online retailers really do
have an advantage over traditional brick-and-mortar stores.
The studies find evidence from investors, analysts and consumers themselves that suggest online stores have a competitive
edge when they don’t have to collect sales tax from shoppers. Both studies were conducted by researchers at Fisher
College of Business at The Ohio State University and their colleagues.
In one study, Brian Baugh, Itzhak Ben-David, and Hoonsuk Park from Fisher's Department of Finance found that sales fell
9.5 percent at Amazon.com in five states when the online retailer began collecting taxes on online purchases.
In the other study, Jeffrey Hoopes, assistant professor of accounting, and his colleagues found that the stock prices of
online retailers dropped when news broke about possible legislation that would require them to collect sales tax.
Overall, the two studies show that consumers do indeed spend less at online retailers when they have to pay sales tax –
and investors are quite aware of the threat these firms face from new tax-collection laws.
“Internet taxation is an important issue that will be debated for years to come,” Ben-David said. “But we’re starting to learn
how much internet retailers really benefit from not having to collect sales tax from customers in some states.”
In their study, posted on the Social Science Research Network and National Bureau of Economic Research, Baugh, BenDavid, and Park used anonymized data from a personal finance website. The researchers examined retail transactions for
about 1.3 million households in 2012 and 2013 from five states that began collecting tax on Amazon purchases during this
time: Texas, Pennsylvania, California, New Jersey and Virginia.
They found that after the introduction of the tax collection, Amazon sales fell 9.5 percent among these consumers. The
effect was particularly pronounced on larger purchases. Consumers decreased their spending at Amazon by nearly 24
percent on purchases of $300 and above.
“If you’re going to make a big-ticket purchase like a big-screen TV or a laptop, there are currently huge incentives to go
online to avoid the sales tax. These incentives are much stronger for large purchases than for small purchases, and our
findings confirm that large purchases are indeed more sensitive to the introduction of this tax,” said Baugh, a doctoral
student.
Added Park, who is also a doctoral student, “If that advantage disappears, like it did in these states, you’re more likely to find
another online retailer where you don’t have to pay the tax or go to a local store where you can see the product and return it
easier.”
But if the goal of these new tax-collection laws was to help local brick-and-mortar stores compete against Amazon, they only
had limited success.
“For the most part, consumers simply switched their spending to other online retailers that didn’t have to collect the tax,” said
Ben-David, associate professor and Neil Klatskin Chair in Finance and Real Estate.
The researchers estimate that households use local brick-and-mortar retailers for about half of the lost Amazon purchases.
Other purchases are done online. These findings show that, overall, the piecemeal state-by-state legislation to tax online
purchases will only give slight benefits to local brick-and-mortar stores.
“Unless there is some kind of national legislation, there will be loopholes that consumers can use to continue to avoid sales
tax on some online purchases,” Park said. “It is clear that one of Amazon’s advantages in the competition against other
retailers was lower total price since Amazon did not collect sales tax. Our study shows that about 10 percent of sales were
driven by this advantage,” Baugh said.
But the drop in sales at Amazon in these five states shows why investors and analysts are clearly worried about how salestax legislation may affect online firms that are forced to collect the tax.
Hoopes, along with colleagues Jacob Thornock and Braden Williams of the University of Washington, showed this in their
study, which is posted on the Social Science Research Network. They looked at proposed federal bills that, if passed, would
force online retailers to begin collecting sales tax. They then identified major event dates for each piece of legislation in
which there was news coverage suggesting that passage of the bills was more likely.
The question was, what happened to the stock values of these online retailers in the days following these news
announcements?
Hoopes and his colleagues found the online retailers saw their stock returns drop 0.7 percent more than expected on days
when these proposed laws hit the news.
“Investors perceive that these e-tailers have a competitive advantage because they don’t have to collect sales tax, and when
that advantage is threatened, their stock prices go down,” Hoopes said.
However, the researchers did not find that other retailers – those firms that are suspected to be at a disadvantage compared
to online retailers – had an abnormally high stock return on days when the proposed sales tax legislation was in the news,
Hoopes said. Instead, their returns were just about what would have been expected on these days.
In addition, the study found that, around the times of these news events, stock analysts forecast about a 1.5 percent decline
in projected future sales revenue for online retailers as a result of potential federal sales tax legislation.
Hoopes and his colleagues also used a case study to show how Amazon sales in particular may suffer in states where they
have to collect sales tax.
In this case, the researchers compared changes in internet searches for the word “Amazon” surrounding dates when
Amazon first began collecting sales tax in various states. The hypothesis is that consumers may search for the word
“Amazon” to get to the firm’s website when they want to buy something online. Results showed that weekly Google search
volume for the term “Amazon” decreases in a given state after Amazon begins collecting sales tax in that state.
Overall, Hoopes said this study provides a company-level view of the effects of sales-tax legislation in the states.
“Most of the previous research focuses on the consumer, and whether they will buy fewer products from e-tailers if they
have to pay sales tax,” Hoopes said. “We examined if collecting sales tax would actually hurt the firms themselves, and
found evidence that it would. “The concerns that there isn’t a level playing field for all retailers may be justified, as least as it
is perceived by the market.”