As the number of states where Amazon collects sales tax grows, a recently updated study by Ohio State University’s Fisher College of Business (FCB) drives home the point that the competitive advantage the company gained from not charging sales tax was as significant as Main Street retailers claimed — if not more so.
“The ‘Amazon Tax’: Empirical Evidence From Amazon and Main Street Retailers” by Brian Baugh, Itzhak Ben-David, and Hoonsuk Park at FCB, first released in April 2014, studied the effects of Amazon collecting sales tax in five states. The updated paper studies the effects in 19 states.
As the number of states that have passed sales tax fairness laws, and the number of states in which Amazon has built warehouses, has grown, so, too, has the number of states in which the online giant now collects sales tax. Amazon currently collects and remits sales tax for purchases in 28 states (Amazon announced it will begin collecting in Colorado beginning February 1, 2016, according to media reports). This growth is remarkable in a number of ways, specifically for independent booksellers, who were the first to point out Amazon’s unfair competitive advantage. With Amazon now collecting in 28 states, it means that 87 percent of American Booksellers Association member locations are in states where Amazon collects sales tax, according to data compiled by ABA.
The updated FCB study, which examines 19 cases of states that began a permanent collection of taxes on Amazon purchases between 2012 and 2015, demonstrates that the impact of sales tax collection in states cannot be understated. FCB explains that its dataset includes “high-frequency household-level transaction data for 422,452 households,” which allowed it to closely track consumers’ purchase behavior around the introduction of the tax. The results, it said, “shed light on the effects of the Amazon Tax on the demand for Amazon products.”
Using the transaction-level data, researchers at FCB found that households in states where Amazon collects sales tax reduced their Amazon purchases by eight percent after sales taxes collection was implemented. The effect is more pronounced for large purchases, the study noted, for which they estimate a reduction of 11 percent in purchases.
Researchers at FCB chose to focus on a particular industry, electronics retailers, for their study and found that Amazon’s direct competitors Best Buy (brick-and-mortar and online) and Newegg (online) experienced an increase in sales thanks to the implementation of the sales tax fairness laws. In the long term, Best Buy’s sales increased by 7.1 percent and Newegg’s sales increased by 11.5 percent, the study reported.
The study also found that low income households reduce their spending on Amazon by a larger amount than high income households. “Low income households reduce their spending by around 12 percent while high income households reduce their spending by around 9 percent in the longer term,” the researchers reported. “Both low income and high income households reduce their spending into the long term.”