Is Sales Tax An Anchor On Amazon?

One of the more long-grumbled complaints in retail is that Amazon and other eCommerce players are able to exploit a loophole that allowed them to mostly avoid charging sales tax. The effect of that loophole has lessened greatly for Amazon as its warehousing networks have grown — since online retailers have to charge sales tax in any state they have a location — but as Congress has been pondering the possibility of a national sales tax, the question has been recurring. Would collecting sales tax 100 percent of the time take a bit out of Amazon’s bottom line?

Recent data suggests — probably not.

At present, Amazon collects sales tax in 28 sates (versus the six states it collected sales tax in in 2011). For many years, avoiding sales tax was, in fact, Amazon’s primary reason for not expanding its warehouse footprint into more states. However, as Prime has grown in popularity, so too has the scope of Amazon’s warehouse network and thus the scope of Amazon’s sales tax collections.

Has it made a big difference? Ehhh, not so much it seems — at least not after a while.

When Ohio State University students investigated newly sales-taxed states in 2014 — California, New Jersey, Pennsylvania, Texas and Virginia — they found that requiring payment of sales tax reduced Amazon’s sales in those states by 9.5 percent for purchases under $150 and by as much as 15.5 percent for purchases over $150.

Recent data, however, indicates that the effect might not be all that long-lasting. This year, Slice Intelligence investigated Amazon purchases in two states where sales tax collection is required — Colorado and South Carolina.

The data found that Colorado’s sales on Amazon were slow out of the gate before sales tax collection was happening — growing 8 percent slower than neighboring states, on average. After sales tax was put into place, growth stayed at 8 percent slower than its neighbors. In South Carolina, Amazon’s sales were growing 3 percent faster in the pre-tax period than in three adjacent states and 5 percent faster after it began collecting sales tax.

“Statistically, there is no difference,” said Slice VP and Principal Analyst Ken Cassar. “They [consumers] value the convenience more than they value the tax saving. The growing importance of convenience is one of the key trends impacting the eCommerce space today, beyond just Amazon. Price and selection are still key pillars of the channel, but they aren’t as dominant as they used to be.”