In States With Amazon Sales Tax, People Spend Less On Amazon

Many people order things from Amazon because it’s incredibly convenient — no driving to the store; no waiting in line; no shoving into the back of your car… and in many states, no collection of sales tax. A new study tries to figure out the impact of removing that last incentive from the equation.

A recent study [PDF] from the National Bureau of Economic Research looks specifically at what happened to Amazon’s sales in states that where the e-tailer is now obligated to collect sales tax.

(NOTE: This is where we remind everyone that even though a website or mail-order business might not collect taxes in your state, you’re still supposed to pay that tax when you file your tax returns. And… this is the point where you chuckle at that idea.)

The study focused on five states — California, New Jersey, Pennsylvania, Texas, and Virginia — where Amazon only recently began collecting sales tax.

Once consumers in these states began seeing taxes — ranging from 5% in Virginia to 8.2% in California — added to their Amazon bills, they cut their Amazon spending by about 9.5%.

The effect appears to be directly related to tax rate, with the net value of sales in California dropping by nearly 15%, while in Virginia it was only 3.4%.

Not surprisingly, consumers in these states were less likely to shell out for big-ticket items on Amazon now that they wouldn’t be saving large amounts in uncollected taxes. According to the study, shoppers in these states decreased their spending by 15.5% on purchases larger than $150, and by 23.8% on purchases equal to or larger than $300.

Tax collection does seem to have the effect of increasing competition in the marketplace, but it’s not necessarily driving consumers to go back to the mom and pop stores that once filled Main Streets of the country — unless mom and pop also happen to have a good e-commerce aspect to their operation.

On those purchases worth more than $300, the researchers found a 23.7% increase in purchases at non-Amazon online retailers and a 6.5% increase in purchases at local bricks-and-mortar retailers.

“We conclude that to a small degree, the tax legislation achieved its objective of restoring retail activity to local communities,” write the researchers, “though most of the gains in ‘leveling the playing field’ are garnered by the online operations of retailers.”

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  1. Snarkapus says:

    Or you’re like me and have high dollar stuff shipped to office in neighboring state which doesn’t have tax. Amazon goes by the ship-to address, not the bill-to address.