New research confirms that many consumers actively seek out and favor retailers that do not collect sales tax, and that discriminatory sales tax laws that allow some Internet retailers to avoid collecting tax are harming many brick-and-mortar businesses who collect the tax (in sales tax states).
A new study titled “The ‘Amazon Tax’: Empirical Evidence from Amazon and Main Street Retailers” comes from the Fisher College of Business at Ohio State University, released in April 2014.
The researchers looked at consumer behavior in five states (California, New Jersey, Pennsylvania, Texas and Virginia). They compared spending patterns before and after the states required permanent collection of taxes on Amazon purchases between 2012 and 2013.
The data comprised daily transactions for 2,807,476 households from January 1, 2012, to December 31, 2013, and included both banking (i.e., checking, savings and debit card) and credit card transactions. Researchers observed the date, amount and description of each transaction. Among the findings:
- Amazon sales fell by 9.5 percent following introduction of mandatory sales tax across all states in the value of products (net of sales tax).
- The total dollar amount spent by consumers on Amazon, including taxes, decreased by 2.8 percent in the wake of a law’s implementation.
- Avoiding sales tax was especially important for large purchases. When sales tax laws were in place, people decreased their spending by 15.5 percent on purchases larger than $150, and by 23.8 percent on purchases equal to or larger than $300.
- With sales tax collected, people moved away from Amazon to competing retailers, both brick-and-mortar and online. There was a 19.8 percent increase in purchases at the online operations of competing retailers. There was a 2 percent increase in local brick-and-mortar expenditures at these retailers.
- For purchases over $300, there was a 23.7 percent increase in purchases at other online retailers and a 6.5 percent increase in purchases at local brick-and-mortar retailers. Amazon Marketplace merchants, who are generally not subject to the Amazon Tax, experienced a 60.5 percent sales growth on large items (over $300).
The study’s authors wrote that “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 …
“Overall, our study shows that Amazon experiences a decline in sales following the implementation of an Amazon Tax. Households substitute Amazon with other retailers: either online retailers who are exempt from collecting sales tax, or in-state retailers (online and brick and-mortar).”
The authors also summarized findings from several other studies that show consumers actively attempt to avoid sales taxes when given the chance. Among the conclusions:
- Consumers who live near state borders often shop in the neighboring state when there are positive sales tax differences.
- Consumers increase their purchases during sales tax holidays.
- One study used survey data to estimate that the number of online shoppers would drop by 24 percent if the tax-advantaged status of Internet retailers was removed.
As sales tax reform legislation continues to languish at the congressional level, the new research confirms what many have already said: Brick-and-mortar retailers who collect sales tax are harmed by tax laws that favor their competitors. The question remains: Why is the government favoring one form of businesses versus another? Shouldn't there be a level playing field for direct competitors?
The entire paper can be downloaded here.