April 23, 2014

There’s one thing that can slow Amazon sales, OSU researchers find

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Percentage blocks going wild via Shutterstock.

Percentage blocks going wild via Shutterstock.

Picture a few professors flexing their muscles, doing some sick karate moves, like video game characters getting ready for a fight. Now imagine the paper they’ve written together revealing some bad-ass data about sales tax.

Researchers at THE Ohio State University published a paper on Amazon‘s performance this month that shows sales are slowed by about 10% as soon as a state requires the online retailer to charge sales tax.

“There is no ambiguity,” Brian Baugh, who co-authored the report and works for Ohio State’s Fisher College of Business, speaking to Adam Satariano of Bloomberg News as he chopped a board in half with his bare hands. “It has been their competitive advantage.”

The paper is titled “The Amazon Tax,” and it’s one of the first attempts to quantify the states’ income from online sales tax. States are losing an estimated $23 billion a year by waiving sales tax for online purchases.

The authors tracked 245,000 households spending at least $100 on Amazon during the first six months of 2012, and then tracked their spending until the end of 2013. About a third of the these households were in states that began to collect online sales tax over the course of those years, including California, New Jersey, Pennsylvania, Texas, and Virginia.

Amazon currently collects sales tax in twenty states, and Florida will join them on May 1. Consumer spending on Amazon dropped about 10% overall as soon as tax was added to the total, and dropped 24% for purchases over $300, according to this paper.

Many people were still too busy (or lazy?) to make their purchases at brick-and-mortar stores after the switch — physical stores only experienced a 2% increase — but customers turned to other online retailers, which seems like a blow against Amazon. But these households turned to merchants that use Amazon marketplace instead, which means Amazon made a profit through fees anyway.

Amazon will report its earnings tomorrow, April 24. You know there still won’t be a profit. There will probably be a series of graphs with no numbers attached. But sales tax is taking a very small toll, one state at a time.

 

Kirsten Reach was an editor at Melville House.

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