States imposing online sales tax aren’t driving business back to Main Street

By Eric Boehm | Watchdog.org

MINNEAPOLIS — Rather than providing a level playing field or a lifeline for traditional retailers, new online sales taxes are driving consumers to other, non-taxed, online retailers.

That’s one of the underreported takeaways from a new study released this week that found Amazon saw declining sales in states with new online sales tax rules. The researchers at Ohio State University who conducted the study found consumers reduced their spending on Amazon purchases by as much as 10 percent compared to consumers in states that do not impose such taxes.

AMAZING AMAZON: Researchers found that consumers are shifting away from Amazon in states where online sales taxes are being enacted. But those consumers aren’t going back to Main St. businesses, either.

Much of the early reaction to the study has focused on the potential consequences to Amazon’s business model. After all, online sales taxes are likely here to stay and will only be expanding in coming years as more cash-strapped states look for new streams of revenue.

Amazon has enjoyed an edge against brick-and-mortar retailers because consumers didn’t have to pay a sales tax for purchases from the e-commerce site, yet that has eroded as states including California and Texas have unveiled the levies,” Bloomberg reported this week.

There are now 20 states that impose taxes on online purchases, with Indiana, Nevada and Tennessee being the newest states to collect the tax.

Advocates of taxes on Amazon and other big online retailers have argued the lack of taxes gives an unfair advantage to those who sell over the Internet at the expense of traditional brick-and-mortar stores. Politicians supporting those policies have used the same language to explain why states must collect the taxes.

Florida Retail Association CEO Rick McAllister told state lawmakers online taxes were needed because “it’s an issue of fairness,” not revenue, citing the need to help prop up local retailers.

“It’s simply a matter of fairness under the existing law, and it’s essential that both e-commerce retailers with nexus and brick-and-mortar stores in Pennsylvania, many of which are small businesses employing thousands of Pennsylvanians with retail jobs, are treated equally,” said Dan Meuser, Pennsylvania’s secretary of revenue, in announcing a new policy to step-up enforcement of existing online sales tax laws.

While the new study shows Amazon is taking a hit in sales, new taxes are not driving consumers back to traditional stores.

The researchers tracked Amazon purchases by 245,000 households — most of them in five states where new taxes were recently enacted — during 2012 and 2013. During that time, brick-and mortar retailers saw only a 2 percent increase in sales. A far larger increase went to smaller online retailers like those who are part of the Amazon Marketplace.

When it comes to so-called “big ticket” items, which researchers identified as purchases of more than $300, those smaller online retailers saw a 61 percent increase in sales.

Why? Perhaps because users in the Amazon Marketplace don’t have to pay — you guessed it — sales taxes.

“This report is no help for main street stores who see only a tiny lift when Amazon starts charging sales tax,” said Steve DelBianco, executive director of the NetChoice Coalition, an association of small online retailers who oppose online sales taxes. “Instead, tax-sensitive Amazon customers turn mainly to the websites and stores of the top 12 big-box retailers. ”

DelBianco told Watchdog.org the efforts to impose sales taxes on online businesses creates complicated and expensive compliance requirements for small retailers who are already struggling to compete with Amazon and other big online retailers like Walmart and Best Buy.

Boehm is a reporter for Watchdog.org and can be reached at EBoehm@Watchdog.org

Rob Port is the editor of SayAnythingBlog.com, a columnist for the Forum News Service, and host of the Plain Talk Podcast which you can subscribe to by clicking here.

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