Has collecting sales tax hurt Amazon’s sales?
And that’s important not just for Amazon: It also impacts Amazon sellers who rely on Fulfillment by Amazon to handle shipments to consumers.
Amazon provides a good test because it collects sales tax in a lot more states now than it did just a few years ago: 28 today versus six states four years earlier. Amazon, which for years limited its warehouse footprint to avoid collecting sales tax, has to collect in many more states now that it has covered the United States with more than 100 distribution centers in recent years as part of its strategy to offer shoppers fast and often free delivery.
Ohio State University researchers released a study in 2014 that examined five states in which Amazon had begun collecting sales tax in 2012 or 2013—California, New Jersey, Pennsylvania, Texas and Virginia—and concluded that requiring payment of sales tax reduced Amazon’s sales in those states by 9.5%. They noted that there was an even bigger decline—15.5%—in purchases over $150, suggesting consumers might be more put off paying the tax on higher-priced items.
But more recent data tells a different story. Slice Intelligence, which collects purchasing data from the email receipts of some 4 million consumers, in 2016 analyzed purchases on Amazon in two states where Amazon had begun collecting sales tax—Colorado and South Carolina—and compared Amazon’s sales growth and market share in those states to those in surrounding states.
The Slice data shows Amazon’s sales in Colorado were growing 8% slower than in seven adjacent states before it began collecting sales tax, and an identical 8% slower afterward. In South Carolina, Amazon’s sales were growing 3% faster in the pretax period than in three adjacent states and 5% faster after it began collecting sales tax. In both cases, says Slice vice president and principal analyst Ken Cassar, “Statistically, there is no difference.”
Cassar says Amazon Prime, which offers consumers free, two-day shipping for a year for a $99 fee, has made Amazon shoppers less price-sensitive. “They value the convenience more than they value the tax saving,” he says. “The growing importance of convenience is one of the key trends impacting the e-commerce space today, beyond just Amazon. Price and selection are still key pillars of the channel, but they aren’t as dominant as they used to be.”
Amazon, No. 1 in the Internet Retailer Top 500 Guide, has a big advantage over most competitors in that it has signed up 63 million households for Prime, and those households represent 52% of Amazon shoppers, according to Consumer Intelligence Research Partners LLC, an equities research firm. That’s a lot of consumers who may be willing to pay sales tax if it means getting free and fast shipping.
That’s good news for retailers that sell on Amazon and rely on Fulfillment by Amazon. Those merchants are required to collect sales tax in any state where Amazon is holding their inventory in one of its warehouses, says Brian Gonsalves, CEO of NetRush Inc., which helps brands sell on Amazon. He advises merchants to check their Amazon Seller Central account to see where there goods are stored and to collect and remit sales tax in those states. “Those sellers who continue to misinterpret case law to serve their lack of sophistication, or believe that they can outwit the states, will soon be very familiar with how sophisticated and hungry the states are for what is owed to them,” Gonsalves wrote in a blog in June.