The Amazon Tax Problem: What Collecting Sales Tax Costs the Online Retail Giant

[TexasTowelie]

Amazon (NASDAQ: AMZN ) has either made deals to or been forced by law to collect sales tax in a number of states -- sales for the site to households in those states have decreased by 9.5%, according to a study by researchers at Ohio State University.

The study also showed that the effect is "more pronounced" for larger purchases and that Amazon's loss becomes a 2% increase in purchases at local brick-and-mortar retailers and a 19.8% increase in purchases at competing online retailers.

If those numbers track out as Amazon either agrees to (or is forced to) collect sales tax around the country, the impact on business could be enormous (though less than a 9.5% drop in business because some states don't have a sales tax in the first place).

Amazon has been such a huge success that it has taken business away from traditional retailers and affected sales tax collection across the country. Tax collection in general has fallen more into focus as the so-called "Great Recession" lowered revenues across the board and caused an increased demand on services. That has led a number of states to evaluate their tax collection systems. Amazon has fallen under scrutiny because the site not only avoids paying taxes to the state (which hurts the state), but not charging sales tax gives the online retailer a pricing advantage over actual stores.

More at http://www.fool.com/investing/general/2014/04/23/the-amazon-tax-problem-what-collecting-sales-tax-c.aspx .

[Igel]

1. But I've never seen a good analysis.

Because while Amazon reduced sales at brick-and-mortar stores (which is the main problem for some, it would seem) and reduced sales taxes (which is the main problem for others), it also increased efficiencies and saved money that way.

And if I have $20 to spend, it's going to be spent. Perhaps at Amazon. Perhaps elsewhere. If Amazon is more efficient, then I either buy what I want at Amazon and spend the rest elsewhere or buy more than I had initially wanted, helping publishers and writers. (But not the state governments.)

At the same time, though, ebook-readers were becoming more popular. So brick-and-mortar sales, as well as Amazon's, would be hurt. Abe and other used booksellers were claiming a larger share of the market, as well. Even locally there are new used book stores that opened in the last 5-6 years, chipping away at the brick-and-mortar stores that most people focus on.

And Amazon either forced you to buy more for free, slow shipping or to pay for shipping. Which mitigated the lack of charging for sales taxes and made their product *more* expensive. (I still preferred Amazon because I didn't have to special order stuff. I have absolutely no use for most small bookstores. If one doesn't focus on math, science, linguistics, or foreign languages ... it has nothing of interest for me.)

Since increased sales taxes drives, to a large extent, increased sales at online competitors you'd think this would produce equivalent ire. But it doesn't. Amazon is, for many, a symbol--big, disembodied, impersonal. It's to be hurt, and hurting it is good even if nobody that ostensibly matters (local, small, artsy stores) really benefit.

Most "analyses" pick a few aspects to look at. It's like trying to analyze a business' cash flow by focusing on one or two things. What you see is what you look for. The question determines the answer.

[snappyturtle]

2. I think it's a complicated issue, e.g. hometown rule taxes. I know back in the

eighties when I went to different towns in IL to sell my art work I had to check on the town's sales tax rate. In the end I had a portfolio full of tax charts reflecting the number of communities I sold in. Here in TX the problem is that the max a town can charge is 8.25% but if I sell, thru auction, mail order, to another locality (in TX) that charges less than my town....it was so confusing I didn't apply for a tax number in state. I can't sell to TX residents on eBay....because I really don't know what to do....so I can imagine the mess Amazon could be in.

[SoCalDem]

3. What needs to happen is a national sales tax on online purchases

that is shared 45-45-10 percent..

45% to state or product being shipped
45% to state where item is being sent
10% to shipper for the hassle/expense of collecting the tax

If the tax were 10%, states that do not collect taxes will get a huge benefit
In states that collect taxes, their share will be less than brick & mortar, but more than if these impulse 3AM purchases are never made anywhere

I shop online for MY convenience, and to ME it's worth 10% to NOT have to drive somewhere (or multiple somewheres to find what I want)

Sellers who worry about lost sales, may just have to reduce their prices by 10% if they want their customers to continue to use their online stores.

[seveneyes]

4. Maybe for those with the money to spare

Most of us have been left behind with inflation and other added expenses. Tax only those that have stayed ahead or up with the inflation of added fees and taxes. No more regression.