The recent study “The Amazon Tax: Empirical Evidence From Amazon and Main Street Retailers” by researchers at Ohio State University’s Fisher College of Business shows that remote retailers do indeed enjoy a competitive advantage by not collecting sales tax at the point of sales.
The OSU study focused on Amazon.com and its sales in five states — California, New Jersey, Pennsylvania, Texas, and Virginia — where the company began collecting sales tax on in-state purchases between 2012 and 2013. Following the implementation of sales tax collection by Amazon, the study found that there was a 9.5 percent decline in the company’s sales and that there was a two percent increase in purchases at local bricks-and-mortar stores.
“This study bears out what we have been saying for years — that remote retailers that do not collect and remit sales tax enjoy a clear and unfair advantage over their bricks-and-mortar competitors,” said ABA CEO Oren Teicher. “The magnitude of this advantage is simply astounding and should make clear to Congress that a federal solution to sales tax inequity is very much past due. Retailers should not have to go through another holiday season having their online competitors being subsidized by the inequitable enforcement of sales tax laws.”
The OSU study noted that general sales taxes represent an “important part of state revenue.” In 2011, the authors report, general sales tax constituted 10.4 percent of revenues on average, though the importance of sales tax varies across states, from states that do not collect sales tax to Washington State, where the sales tax is 21 percent.
According to the report’s authors, there is “strong evidence” that the effect of sales tax laws increases with the price of an item, meaning households are more likely to try to avoid paying sales tax on larger ticket items. Consumers decrease their spending by 15.5 percent on purchases that are more than $150, the study noted, and on purchases of $300 or more, spending decreases by 23.8 percent.
The biggest beneficiaries of sales tax fairness laws appear to be the online operations of competing retailers, which saw purchases jump by 19.8 percent. “We conclude that to a small degree, the tax legislation achieved its objective of restoring retail activity to local communities, though most of the gains in ‘leveling the playing field’ are garnered by the online operations of retailers,” the authors state. Presumably, the “online operations of retailers” could include the e-commerce sites of independent retailers, though the report does not differentiate on this point.
Interestingly, while sales at bricks-and-mortar retailers increased by two percent on average in the five states, in Texas and Pennsylvania, Main Street store sales rose by 5.5 percent and 5 percent respectively. Their increases were offset by results in Virginia, where sales at bricks-and-mortar retailers decreased by 4.4 percent.