Brick and mortar stores complained for years that Amazon.com, Inc. (NASDAQ:AMZN) had an unfair advantage because it doesn’t have to pay sales taxes. A new study of the impact that new online sales taxes have had in New York and other states shows that the traditional retailers may have been right, but online sales taxes may not bring back the foot traffic that they’ve lost.
“There is no ambiguity,” said Ohio State University business professor Brian Baugh, one of the study’s authors, reports Adam Satariano for Bloomberg. “It has been their competitive advantage.”
Amazon’s lost sales go to other online retailers
Amazon.com, Inc. (NASDAQ:AMZN) has seen its sales drop 10% in states that now have an online sales tax, and sales of items over $300 fell by 24%, but most of the lost customers stayed online and some of them even stayed within the Amazon ecosystem. Brick and mortar stores only saw a 2% increase in traffic in states with online sales taxes, while other online shops got a 20% boost in those states. Many times these competitors actually advertise alongside Amazon’s own products, so even when Amazon misses on a sale it is still getting a cut from advertising. At the end of the day, a few extra clicks are still more convenient than driving across town.
While fairness to traditional retailers may be a concern for some, the need for tax revenue is behind most legislators support for online sales taxes, so the companies currently partnering with Amazon probably won’t be able to avoid sales taxes forever. Brick and mortar stores might be hoping that a more uniform application of online sales taxes will bring people back if targeting Amazon.com, Inc. (NASDAQ:AMZN) didn’t work, although that seems optimistic.
Online sales taxes will soon affect 60% of Americans
Amazon.com, Inc. (NASDAQ:AMZN) had previously tried to get out of paying taxes in states where it didn’t have a physical presence, but those arguments didn’t pan out in court and it won’t be long before the company has to deal with taxes everywhere. When Florida joins the fray, 60% of Americans will have to pay sales tax when they buy something from Amazon, presumably pushing them to smaller online retailers.
As Amazon.com, Inc. (NASDAQ:AMZN) grows it will have to deal with different tax schemes around the world, as well as changing and sometimes conflicting regulatory expectations. But that’s only new because the internet was once so hands-off. It’s a sign of how well established tech firms like Amazon have become that they have the same regulatory headaches as everyone else.