Amazon sales down in states where taxes are collected

Amazon.com has seen its sales fall in state, including Tennessee, where it has begun collecting taxes on purchases, according to a study reported upon by the Chattanooga TFP.

Tennessee joined 19 other states this year in requiring Amazon to collect sales taxes on what it sells because the company operates distribution facilities in the state, including its giant warehouses in Chattanooga and Charleston, Tenn. Amazon will begin collecting sales taxes on items purchased by Florida residents on Thursday after the company expanded its facilities in the Sunshine State last year.

A new study suggests that requiring Amazon to collect the sales tax is likely to limit Amazon sales and push some buyers to other online merchants that don’t have a presence in Tennessee and aren’t required to collect sales taxes.

Researchers at Ohio State University looked at purchases by 245,000 people in five states that began permanent collection of taxes on Amazon purchases between 2012 and 2013 — California, New Jersey, Pennsylvania, Texas and Virginia. The study found that the sales tax reduced Amazon sales overall by 9.5 percent. For purchases of $300 or more, Amazon sales plunged by 23.8 percent after the company began collecting the tax.

“Households substitute Amazon with other retailers, either online retailers who are exempt from collecting the sales tax or in-state retailers (online and brick-and-mortar),” doctoral student Brian Baugh wrote in the 39-page study.

While Amazon sales dropped, big-ticket sales of other online merchants who still don’t have to collect sales taxes on their sales jumped by more than 60 percent. The study found that sales at local brick-and-mortar stores rose 6.5 percent on items valued at $300 or more.

Desha Grubb Maples said Tuesday she has quit buying from Amazon since the new tax began in January, in favor of other online merchants not required to collect the tax because they don’t operate in Tennessee.

Despite such losses, however, Amazon.com still grew its sales by 20 percent in the first quarter of 2014. How did the online retailer do it?
Well, not everything Amazon peddles on the Amazon Marketplace website is covered by the new “Amazon tax.” Amazon.com’s program permits third-party sellers to advertise their goods on its website — and even to outsource the billing, warehousing and delivery to Amazon.

But because the items are not technically sold by Amazon, such items are not subject to requiring buyers to pay sales tax at the time of the purchase. As a result, Amazon still doesn’t have to collect tax on much, if not most, of the sales it makes through its website.