Bricks-and-mortar retailers long complained that online merchants such as Amazon had a substantial advantage because they weren’t required to collect state sales tax. Researchers from The Ohio State University found that those retailers were right.
The “Amazon Tax”: Empirical Evidence from Amazon and Main Street Retailers, a study for the National Bureau of Economic Research, showed that households reduced spending on Amazon by about 10% in states where an online sales tax was collected, compared to those in states that don’t. It also found that sales fell 24% on purchases of more than $300.
“There is no ambiguity,” Brian Baugh, an author of the report, told Bloomberg. “It had been their competitive advantage.”
The study tracked the spending of 245,000 households that spent at least $100 on Amazon during the first six months of 2012. About a third of the respondents lived in states where new tax laws have gone into effect.
While the researchers found there is a benefit for e-tailers in not collecting sales tax, bricks-and-mortar stores didn’t get a huge rise in sales in states that did require Amazon to collect the tariff. The study found physical stores saw just a 2% bump in sales in states with online sales tax collection because shoppers turned to alternatives such as using Amazon Marketplace, which has products from merchants who pay a fee to Amazon but are not required to collect sales tax.
“If they make one extra click on Amazon, they can continue to realize these tax savings while still enjoying the whole Amazon ecosystem,” Baugh said.
Any dip due to online tax collection hasn’t kept Amazon from growing, at least not in the first quarter of 2014. On April 24, the online retailer reported growth of 23%, to $19.74 billion, in the first quarter, up more than $3 billion from 2013 and surpassing analysts’ estimates of $19.4 billion, according to a report in The New York Times.