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Online Retail Giants v Big Box Stores: Does Sales Tax Matter?

  • Jan 14, 2013 | Gail Cole

 Consumers Flock to this Best Buy.

If you could pay the same retail price and the same sales tax on an item, would you rather buy it from an online retailer or a physical store? Both have advantages. If you drive to a store, you can see and touch the item before you buy it. If you shop at Amazon.com, for example, you can make your purchase any time of day or night; you can peruse customer reviews (if you trust them); and, if you're a member of Amazon Prime, you can avoid shipping costs.

And let's not forget that in many states, if you shop at Amazon, you don't have to pay sales tax.

The number of states for which this is true is dwindling. Amazon has collected tax on sales of physical goods in Kansas, Kentucky, New York, North Dakota, and Washington for some time. The retail giant began collecting sales tax in California, Texas, and Pennsylvania in 2012. It is slated to collect sales tax this year in Arizona, New Jersey and Virginia, and in Tennessee, Nevada and Indiana in 2014 (South Carolina in 2016).

In the past, Amazon has said that its sales have not been significantly impacted by the addition of sales tax. A survey done in Texas showed that "consumers… essentially haven't changed their buying habits since the online sales tax went into effect in July." And there is a silver lining in the sales tax cloud: the more places Amazon collects sales tax, the more it expands its physical presence. More distribution centers means faster delivery, giving the company an even greater marketing edge.

Yet there is some evidence that sales may be drifting away from Amazon. A spokeswoman from Best Buy announced last week that "[i]n California, Texas and Pennsylvania where Amazon.com recently started collecting tax, it is very early, but Best Buy has seen a 4 to 6 percent increase in online sales observed in aggregate versus the rest of the chain… . " In other words, Best Buy is claiming that "the sales tax parity has shown that people will shift their buying habits."

This may be especially true for big-ticket items such as flat-screen televisions -- the type of items that draws many people to Best Buy. Sales tax on a book is negligible, but sales tax on a $300 television adds up. Nasdaq reported last week that "Best Buy shares closed up 5 percent at $12.21 on Thursday following news that the company was reclaiming market share from online retailers now forced to charge sales tax in some states." In spite of the fact that Best Buy later announced that "[s]ales at U.S. stores during the recent holiday season were flat," Best Buy "rallied another 7 percent in pre-market trading."

As of yet, Amazon has not commented on whether or not fourth-quarter sales in California were impacted by the imposition of sales tax.

photo credit: dalangalma via photopin cc

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.