Sales Taxes Do Indeed Hurt Amazon's Sales

Retail

Published: April 22, 2014 12:05 pm

Last Updated: April 28, 2020 4:21 am

When Amazon.com Inc. (NASDAQ: AMZN) charges state and local sales taxes for its online purchases, shoppers spend about 10% less. And large purchases fall even more.

The data come from researchers at The Ohio State University, who report what could be an even more important point:

[W]e find that the decline in Amazon purchases is offset by a 2.0% increase in purchases at local brick-and-mortar retailers and a 19.8% increase in purchases at the online operations of competing retailers.

The research aligns well with a report from last January from e-commerce research firm ChannelAdvisor. Sales in California fell as much as 10% below other states after Amazon started collecting California taxes.

One of the Ohio State researchers summed it up nicely for Bloomberg News: “There is no ambiguity. It [Not having to collect sales taxes] has been [Amazon’s] competitive advantage.”

Well, maybe. Amazon still benefits from the fees it collects from merchants at its Marketplace and who are not required by most states to collect sales taxes. The Ohio State researchers noted a 61% jump in sales of big-ticket items for Marketplace merchants. A customer who buys from a Marketplace merchant does not have to pay sales tax and Amazon still gets a cut of the revenue.

Still, the research is not good news for Amazon, which lives on razor-thin margins as a matter of course. The company has been pushing for federal legislation that would require all online retailers above a certain size to collect sales taxes. If enacted, that could chop the 19.8% surge in purchases at other online stores back to zero.

The research has no negative impact on Amazon’s share price Tuesday. The stock was up about 0.9%, at $333.51 in a 52-week range of $245.75 to $408.06.

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