BUSINESS R ETAIL
This Is Amazon’s Real Achilles Heel
Victor Luckerson @VLuck
April 22, 2014
Online sales taxes are
discouraging people from
shopping on Amazon,
according to a new study by
researchers at Ohio State
University. Regular online
shoppers living in states
that implemented a tax on
Bloomberg / Getty Images
Amazon decreased their
spending on the website by
10 percent compared to states without the tax. The drop was
even steeper for big-ticket purchases above $300, for which
Amazon sales in taxed states were down 24 percent.
The lack of sales tax for online purchases has been a big
advantage for Amazon over brick-and-mortar retailers for
more than a decade. But an increasing number of cashstrapped states, which lose a reported $23 billion from
uncollected sales taxes on online goods, are now making
consumers pay taxes for Amazon purchases. In total 20 states
now levy an Amazon tax, according to Bloomberg.
Online retailers can be compelled to collect taxes in states
where they have a physical presence, like an Amazon
warehouse, or in states where the retailer pays marketers to
send traffic to their sites. Unsurprisingly, Amazon has been
battling these tax laws for years. It lobbied the Supreme Court
to rule on the legality of a New York online sales tax law, but
the Court declined to hear the case in December. Amazon has
said that it is in favor of a federal law allowing states to collect
taxes from online shops in a more uniform manner. But the
company also knows the tax issue is a significant threat to its
future business. In Amazon’s latest annual report, the
company noted the rise of online sales taxes as potential risk
factor. “A successful assertion by one or more states or foreign
countries requiring us to collect taxes where we do not do so
could result in substantial tax liabilities, including for past
sales, as well as penalties and interest,” Amazon wrote.
The researchers behind the study followed the purchasing
habits of 245,000 households nationwide that spent $100 on
Amazon in the first six months of 2012, then tracked the shift
in spending when a third of those consumers were hit with
the Amazon tax during 2012 or 2013. Though Amazon
purchases slumped, the additional taxes didn’t actually help
brick-and-mortar stores, which saw a mild two percent bump
in sales. The bigger winners were competing online retailers,
whose sales jumped 20 percent.