Business
7:21 pm
Mon April 28, 2014

Study: Amazon's Sales Tax Sends Shoppers Elsewhere

Requiring Amazon to charge state sales tax has sent many consumers looking for other tax-free options, according to a new study for the National Bureau of Economic Research.

In 2012, Texas Comptroller Susan Combs reached an agreement with Amazon to collect sales tax on items sold to Texans. Because Amazon has a "physical presence" in Texas - its distribution center in Irving - Combs said Amazon should have been collecting state sales tax on online sales. She agreed to drop her demands for $269 million in taxes if Amazon promised to create 2,500 jobs and spend $200 million in capital investments.

But after Amazon started charging sales tax in Texas, its sales in this state dropped by 11 percent, according to researchers.

"Part of it goes to local brick and mortar retailers," says Hoonsuk Park, one of the authors of the study and a Ph.D. student at the University of Ohio. "But about half of it goes to other online retailers that are not taxed."

Those competitors include independent retailers using the Amazon Marketplace, which is operated by Amazon, but does not require retailers to collect sales tax. About 5.5 percent of Texans substituted their taxed Amazon purchases by shopping at brick-and-mortar retailers, the researchers found. 

Park worked on the study with his fellow Ph.D. candidate Brian Baugh and associate professor Itzhak Ben-David.

The team examined Amazon sales in five states where sales tax was implemented. The decline in sales was most pronounced in California, where Amazon sales fell by 14.7 percent. The average drop in sales among the five states was 9.5 percent. 

Some retailers are hoping Congress will pass legislation requiring all online retailers to charge sales tax. The U.S. Senate passed a measure last year that would do that, the Marketplace Fairness Act. The U.S. House could adopt similar legislation this year. 

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