Online sales tax results in 10% decrease in online sales

A new report released by Ohio State University on Amazon’s recent sales show a loss in sales from US states

A new report released by Ohio State University on Amazon’s recent sales show a loss in sales from US states which collect an online sales tax.

The report shows a lower possibility to convert a shopper after an additional charge is implemented. A 10% drop on average was recorded from households who, prior to the levied tax, use the online Ecommerce platform in states which collect the tax compared to states that do not. For high priced items, $300 and above, a larger 24% drop was shown.

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The research was conducted on 245,000 households in California, New York, Pennsylvania, Texas, and New Jersey, states which now levy an online sales tax. The researchers looked at buying habits from the first half of 2012 up until the end of 2013, which over this time the tax was implemented.

Until recently, Amazon enjoyed a clear edge on its physical brick and mortar counterparts, as its customers were not forced to pay tax. Per US law, online customers are responsible to report online purchases and pay the accumulated taxes annually.

Given that no state or federal entity forced US residents to do so, the Marketplace Fairness Act was introduced, swaying the responsibility of collecting sales tax to the merchant. This has proven to be a difficult task as not all states have the same sales tax structure. Amazon does have an integrated tax calculator that adds on the local tax when making a purchase. The list of the states which require a sales tax can be viewed here.

More US states have stated they will follow the trend, like Florida for example, which plans to levy a tax on May 1st.

“There is no ambiguity. It has been their competitive advantage,” Brian Baugh, one of the report’s authors from Ohio State’s Fisher College of Business, said recently.

The research shows, since Amazon has been forced to collect taxes, brick and mortar sales rose by 2%. Additionally, Amazon Marketplace merchants who do not collect tax saw an increase of 61% in sales. With the additional tax, Amazon does state its prices are lower than its marketplace merchants and brick and mortar stores. This shows the psychological impact the move has had on customers, giving the “additional charge” and extra steps and clicks to authorize the tax transaction.

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”As analysts have noted, Amazon offers the best prices with or without sales tax,” Ty Rogers, a spokesman for Amazon, stated.

 

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