Online retailers have certain significant advantages over brick-and-mortar stores – lack of sales tax and other overhead costs. That’s why online retailers have been offering much lower prices, to attract more and more customers. Wal-Mart Stores, Inc. (NYSE:WMT), which has suffered a lot due to its customers shifting to online retailers, is now lobbying for a sales tax bill. The bill will allow the states to impose sales tax on goods sold to their residents by online or out-of-state merchants.
The hearing will be held on Tuesday, July 24, by the U.S. House of Representatives Judiciary Committee. Online retailers will lose the price advantage if the bill is passed. Arkansas-based, Wal-Mart has played a key role in pushing for the bill. The world’s largest retailer is helped by Arkansas Republican Congressman, Steve Womack, who is a close friend of Walton family.
“This is Wal-Mart’s top issue, if not one of their top issues,” Womack told Bloomberg in a phone interview. “Wal-Mart is important to me because they are headquartered in my district. Right now, an online seller has an unfair advantage. How many small-business obituaries do we have to read before we do something. If something affects Wal-Mart, it affects me and it affects jobs in my district.”
Looking at the statistics, it is clearly understood why Wal-Mart is so aggressively lobbying for the bill. In 2011, Wal-Mart sales increased a meagre 1.5 percent to $264.2 billion, but Amazon sales grew 41 percent in the same period to $48.1 billion. According to research firm Kantar Retail, only 20 percent of Wal-Mart customers would shop online in 2007. But now more than 50 percent of its customers say they do online shopping.
According to CNBC, if you calculate the national average, prices of Amazon.com, Inc. (NASDAQ:AMZN) are 12 percent lower than Wal-Mart. Imposing 8 percent sales tax for online shopping would definitely affect online sales, but actual effects are yet to be seen. 47 Congressmen have already signed on, and state governments are also interested in bringing the online sales tax, because it will generate an estimated tax revenue of $23 billion every year. Therefore, the ball seems to be on Wal-Mart’s side.
However, we believe that Internet shopping has emerged as a culture in the past two decades, and instatement of a tax should not discourage customers from purchasing online. Additionally, price is not the only concern for buyers. They also want convenience, which they get through Internet. People can compare products and prices from hundreds of retailers without wasting much time. Therefore, we think that online sales will not be affected much even if the bill is passed.
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