A new study shows shoppers scale back when Amazon begins collecting sales tax in their states – but in-state brick-and-mortar retail stores are not a huge beneficiary.
Amazon long fought against having to collect sales tax, claiming it isn’t required to do so in states where they have no physical presence, called nexus. But in recent years, it has brokered deals with many state governments when it wished to build fulfillment centers around the country.
A new study tried to quantify the impact on Amazon when it goes from offering tax-free purchases to collecting sales tax. Would shoppers really change their buying behavior if they suddenly had to start paying sales tax on Amazon.com purchase?
The authors of the study say yes, shoppers do change their behavior when Amazon begins charging sales tax.
“We find that Amazon sales fall by 9.5% after implementation of an Amazon Tax, corresponding to an elasticity of -1.3. We find the effect to be more concentrated in large purchases, such as those over $300. For this subset of purchases, we find that Amazon sales fall by 23.8% after implementation of the Amazon Tax, corresponding to an elasticity of -3.2.”
So where are consumers shifting their shopping dollars?
“Forgone Amazon sales shift to both other online retailers and brick-and-mortar retailers. The substitution is especially strong for large purchases of $300 or higher. While some of the substitution occurs in online retailers and brick-and-mortar retailers who have presence in the effected state, some of the sales shift to Amazon Marketplace, a retail platform that is provided by Amazon for small retailers that remains largely exempt from sales tax. Hence, some of Amazon’s forgone sales are channeled to other tax- exempt retailers.”
Furthermore, the report concludes, “The results suggest that broader and more consistently applied sales tax collection of online purchases, such as those suggested by the Marketplace Fairness Act of 2013, will lead to an increase in the online sales of national retailers while only modestly increasing local brick-and-mortar revenues.”
The study, conducted by three researchers at the Fisher College of Business at the Ohio State University, focused on five states – California, New Jersey, Pennsylvania, Texas, and Virginia – that began a permanent collection of taxes on Amazon purchases between 2012 and 2013. Their dataset contained high-frequency household-level transaction data for 3 million households.