Will State Sales Tax Ruin Amazon.com?


Amazon now collecting sales tax

More and more states are requiring Amazon.com collect sales tax for those states in which they have a physical presence. While this has been an ongoing battle for years, Amazon.com has been quietly reducing its rigorous fights against it.

Are you paying sales tax for Amazon.com purchases?Amazon Sales Tax Map

One of the draws of Amazon.com, and online purchases overall, has been the lack of sales tax on purchases. Of course tax preparers have long been asking their own clients if they have made purchases online. It has always been a fine dance of who collects and pays the sales tax, but while it’s a fuzzy line, the sales tax on purchases is still due to the states.

That being said, it is more streamlined and more effective for retailers to collect sales tax on purchases and submit that to the states. It has amazed me for a while now, as a resident of PA, that Amazon.com purchases did NOT require sales tax since they do have a physical presence in this state. I understand the reluctance in those states where there is no presence, but this one confused me. As the company begins to roll out more drop box locations and continues to expand the business it is inevitable that sales tax on purchases through them will become the norm.

But what about other online retailers? And will this be a boon for brick and mortar stores as one of the perceived advantages of online shopping is stripped away?

It depends. Why are people shopping online?

Convenience

It’s quick and easy to go online late at night when you realize you’re low on deodorant, then yell out to the other room to see if anyone needs anything from the drugstore. A couple days later you know your items will show up. Of course if you’re out of deodorant you’ll need to run to the store either late at night or stop at the convenient store in the AM to get the travel size, but it will require another stop on your already cram-filled day.

It’s very easy to take your laptop, tablet or even pen and pencil as you walk through the house looking to see what you need while standing in front of the cabinets and not guessing. The online places also store your shopping lists, which makes it even easier.

Shipping – Cost and Timing

These are the opposite of convenience. Shipping costs and times are the downside of shopping online, just as they were in the traditional mail order world. (We sometimes forget that the entire mail order industry existed long before online shopping, and is stil thriving!! We need to listen to them in many ways since they know an amazing amount about customer behavior!!)

Shoppers aren’t stupid, they never have been. Retailers have tried to trick us many times, and even today you can go into a grocery store and unless you check the per unit pricing, you may find yourself paying more for a bulk pack than for individual units. To the same end, we know, we have always known that shipping costs at to the cost of our purchases.

We totaled our purchases up by hand on order sheets for mail order catalogs, now we have shopping carts that do the math for us, down to the penny. We know the value of shipping costs, and that’s why

Lab42 Online Shopping SurveyLab42 recently conducted a survey of 500 online shoppers about their shopping habits (http://blog.lab42.com/) and found that 96% of these shoppers are more likely to shop at a site that has free shipping. That reduces the cost offset, but there is still the timing issue.

Online shopping isn’t just about impulse shopping. (Some is, of course, and for that, you better have mobile and immediacy offers ready to go!!) While there are a wealth of items we can get immediately, there are also a wealth of items we are willing to wait for the delivery of, and often can get it faster than our local retailer can. I was recently in a Barnes & Noble and asked about a book. They did not have that in stock but said they could order it and I could pick it up in a a couple days. I looked her in the eye and pulled out my phone and said, “hmmm, I can order it and have it delivered to my home tomorrow.Barnes and Noble Amazon Member Offers

In the end it would have cost the same, when considering my B&N member discount (which I pay for) vs. my Amazon.com Prime Membership (which I pay for). So it came down to convenience and gas. Amazon got my money on that one, even though I was standing in a B&N store. (That’s a pretty big fail!)

Variety

You can find what you’re looking for at the click of a finger. See an ad for a new product and want it? You don’t have to wait for your local store to get it in stock, you can order it when you see it. You are no longer limited to the inventory merchadising of your locale and population. You can pick up the crazy new nail polish that isn’t stocked in your conservative local store, or when your retailer doesn’t have your size, you can order it online and pick it up there.

Privacy

Online Shopping PrivacyThere are certain items we don’t necessarily want our friendly neighborhood stores to know we purchase, so we buy those online (it’s no one’s business whether I prefer single, two ply or quilted TP!) According to a the survey by Lab41, 45% of shoppers bought something online they wouldn’t have bought in person. I suspect the number of items  people PREFER to buy online, but have purchased in person, is even larger than that.

Price

The economy is in the crapper, we know that, and a significant rapid change would require a miracle, so we should look at what gets people to shop online when they could just as easily and regularly buy in a local store on a regular errand run.

Discounts and promotions

Online retailers are strong promotional marketers, offering direct links to their sales, discounts and time sensitive offers. Brick and Mortar retailers can’t compete as easily without an online presence, and even then, cannot compete as easily for foot traffic in their stores.

It is often assumed that there is less overhead for etailers vs. brick and mortar stores, but with marketing costs, inventory management, shipping systems and warehouses, it’s not as significant a difference as many would imagine, but even the limited differentials can allow for additional marketing offers and discounts.

Shipping costs

As I noted earlier, we have always calculated shipping costs into total costs for our orders, so online retailers are best served to put that information up front and center, before you have to chase us down for abandoned cart.

Sales Tax

Tax is only one small piece of the pie here, but it is worth noting. If online retailers thought we would respond to a 5% discount, they better understand that if all they had to offer was the reduction of the sales tax (3-9% in most instances) they have likely lost customers.

Just as we calculated the shipping and discount costs into the totals, we also calculated sales tax. So it will come down to the TOTAL benefits of online shopping: convenience, variety, cost.

… As for Amazon?

Amazon.com LogoI don’t think Amazon.com will suffer too much for adding sales tax, despite there almost always being another retailer that isn’t in your own state who does not require a sales tax to be collected, but they still usually have a price advantage. (Besides, they have a significant number of customers who are “loyal” to them having paid for Prime membership, which includes free shipping).

That same survey by Lab42 noted that what shoppers look for online also includes:

  • Easy returns
  • Customer Service
  • Promotional Discounts

Amazon offers these, to an extent. But they are an anomoly to what we, as marketers, promote as good marketing. They don’t send promotional emails, they don’t offer much, if any, customer service, and their overall customer outreach is limited. They’re on social media, but they’re not really social, and in fact, focus on selling on social!

What they do offer, however, is targeted recommendations, customer reviews, wish lists and reminders, upsells, daily deals and promotions. But they all require you to be on their site.

They’ve got it like that.

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