Blowback: Amazon sales drop in states with Internet sales tax

Barb Wire

Researchers at the Fisher College of Business at Ohio State University recently found that Amazon sales took a hit in states after they introduced the online sales tax.

The study tracked the spending of around 245,000 households that spent at least $100 on Amazon during the first half of 2012, and then continued to monitor them through the end of 2013. Around a third of the households were located in California, New Jersey, Pennsylvania, Texas and Virginia – areas where new Internet sales tax laws were being implemented at the time.

According to their findings, households in the states that have the tax reduced their overall spending on Amazon by about 10 percent compared to those in states that have not implemented the Internet duty. The sales dropped even more dramatically (24 percent) for purchases costing more than $300.

One of the report’s authors, Professor Brian Baugh, explained to Bloomberg that the tax may undermine Amazon’s competitive niche.

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“There is no ambiguity,” he noted. “It has been their competitive advantage.”

The study’s findings are ironic, considering the fact that Amazon enthusiastically encouraged lawmakers to approve the Marketplace Fairness Act, which would enable states to collect revenue on Internet sales, just like they do from brick or mortar businesses.

However, there is some logic behind Amazon’s support of the legislation – it gives the company the upper hand over small online retailers.

The time and effort necessary to collect state and local sales tax around the country is incredibly onerous, especially because sales tax laws vary from state to state.

While this task can be debilitating for a boutique online retailer, a large company like Amazon is better equipped to handle all of the paperwork.

At the moment the Internet marketplace collects sales tax in 20 states, but the number of states taking an advantage of the extra tax revenue is growing. In the beginning of May, Florida will become the 21st state to implement an online.

Bloomberg noted that states suffering from budget shortfalls are lured by the average $23 billion in extra revenue that can be collected from the levy.

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