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How much do Amazon sales fall when it collects sales tax? - SmartPlanet
The
Bulletin
How much do Amazon
sales fall when it
collects sales tax?
Posting in Technology
How much do online retailers benefit from not collecting taxes?
A new study (http://news.osu.edu/news/2014/04/30/online-retailers-have-clear-advantage-bynot-collecting-sales-tax/) from Ohio State University finds that in five states
that began collecting taxes for online purchases, sales dropped 9.5
percent.
To get at this, the researchers -- Brian Baugh, Itzhak Ben-David, and
Hoonsuk Park from Ohio State’s Department of Finance -- looked at
anonymous retail transaction data of roughly 1.3 million U.S.
households using a personal finance website. The study tracked that
data from 2012-2013 in five states -- Texas, Pennsylvania, California,
New Jersey, and Virginia -- that began collecting taxes on online
purchases during that time and compared spending before and after
the policies went into effect.
In those states, Amazon took its biggest hit from high-cost items. The
study shows that consumers reduced spending on Amazon by 24
percent on items priced at $300 or more.
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But that doesn't mean all of that money is shifted back to local brickand-mortar stores.
"For the most part, consumers simply switched their spending to other
online retailers that didn’t have to collect the tax," said Ben-David, in a
press release (http://news.osu.edu/news/2014/04/30/online-retailers-have-clear-advantage-bynot-collecting-sales-tax/). But Amazon still benefits since much of the
spending for big items just shifts to Amazon's online marketplace
(http://www.businessweek.com/news/2014-04-21/amazon-sales-take-a-hit-in-states-with-online-taxstudy-says), where smaller retailers pay Amazon a fee to offer their
products.
A separate, but related, study from Ohio State University found that
stock prices for online retailers fell 0.7 percent more than expected on
days when news came out about possible legislation requiring them to
collect sales tax.
Currently, online retailers are only required to collect taxes in states
where they have a "physical presence (http://www.sba.gov/content/collecting-salestax-over-internet)." But that could soon be changing. Last year, the U.S.
Senate passed the Marketplace Fairness Act
(http://www.marketplacefairness.org/what-is-the-marketplace-fairness-act/) allowing states
to collect taxes from online retailers regardless of their physical presence
in the state. Some are optimistic (http://www.govtech.com/budget-finance/The-TimeMay-Have-Arrived-for-Online-Sales-Tax-Fairness.html) that it could also pass in the
U.S. House.
But will this legislation really matter to brick-and-mortar retail? As
Baugh explained to the New York Times
(http://boss.blogs.nytimes.com/2014/04/28/when-amazon-collects-sales-tax-some-shoppers-headelsewhere/?_php=true&_type=blogs&_r=0), his research suggests, not as much as
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you might think. "This legislation is being pushed as a kind of savior to
brick-and-mortar stores and a boon to local economies and it doesn't
appear to be the case to me."
According to Forrester Research
(http://www.forrester.com/Forrester+Research+Online+Retail+Forecast+2013+To+2018+US/fulltext//E-RES115941), online retail in the United States accounted for nearly nine
percent of the $3.2 trillion total retail market in 2013. The research firm
also projects a compound annual growth rate of 10 percent through
2018, as online spending per buyer is expected to grow.
Photo: Flickr/Luke Dorny (https://www.flickr.com/photos/luxuryluke/2789374419)
Related on SmartPlanet:
Amazon gives wearable tech its own store
(http://www.smartplanet.com/blog/bulletin/amazon-gives-wearable-tech-its-own-store/)
Amazon to workers: We'll pay you $5,000 to quit
(http://www.smartplanet.com/blog/bulletin/amazon-to-workers-well-pay-you-5000-to-quit/)
Amazon is serious about drone delivery
(http://www.smartplanet.com/blog/bulletin/amazon-is-serious-about-drone-delivery/)
Going out shopping? You'd be dumb to leave home without your
smartphone (http://www.smartplanet.com/blog/bulletin/going-out-shopping-youd-bedumb-to-leave-home-without-your-smartphone/)
Amazon changes prices millions of times every day
(http://www.smartplanet.com/blog/bulletin/amazon-changes-prices-millions-of-times-everyday/)
Q&A: Andrew McAfee & Erik Brynjolfsson, co-authors of The
Second Machine Age (http://www.smartplanet.com/blog/pure-genius/qa-andrewmcafee-erik-brynjolfsson-co-authors-of-the-second-machine-age/)
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How much do Amazon sales fall when it collects sales tax? - SmartPlanet
— By Tyler Falk on May 1, 2014, 10:54 AM PST
Share this
Tyler Falk
Contributing Editor
Tyler Falk freelance journalist based in Washington, D.C.
Previously, he was with Smart Growth America and Grist. He holds
a degree from Goshen College. Follow him on Twitter.
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