Amazon sales tax is imminent

Tom Webb at the Pioneer Press reported that the Minnesota is reaching the end of an era when it comes to sales tax collection for online purchases. It was a good run, but it’s coming to an end July 1st, when the “Save Best Buy and Target from Amazon” bill becomes law.

I decided to look at my own exposure under this change to get a feel for how many meals my daughter is going to need to miss so I can maintain my Amazon habit. The state tax rate is 6.875%. How does that translate?

I looked up my recent purchases on Amazon. It turns out that I’ve spent $5,068 in the past 6 months on 180 transactions. When Carly says that it feels like an Amazon box arrives at our house every day, she’s actually understating the situation.

$5,068 * 6.875% = $348.42

Will I change my buying behavior over $1.90 per day? Am I going to start driving to Target to buy what I buy on Amazon today? No. Here’s why:

1. My actually tax exposure is far lower than that. Why? Because a lot of the stuff I buy on Amazon is tax exempt, such as baby diapersbaby foodbaby clothesadult foodadult clothes, and books.

2. Price competitiveness. The last hardware purchase I made on Amazon was for a kitchen faucet. Home Depot sells it for $349 with free shipping. Amazon sells the same faucet for $61.78 cheaper and ships it twice as fast for free. And, which site do you think provided better customer reviews to decide whether it was a faucet worth purchasing?

Best Buy doesn’t carry my favorite earbuds in their stores, but they do offer them online for 30% more than Amazon. Best buy takes 6-9 days to ship them (with no option to ship them faster) while Amazon ships in 2 days for free.

Richfield-based Best Buy has been particularly hurt by competition from online rivals, and this has led to layoffs and store closings. On Tuesday, CEO Hubert Joly noted that 50 percent of the U.S. population will soon live in states where Amazon’s no-sales-tax advantage will disappear.

This is a real-world example of sales tax not being the problem. Best Buy doesn’t carry what I’d like to buy, so they kick me out to a 3rd party site to buy what I want for 30% more than Amazon charges. I suppose this allows Best Buy to maintain the margins they’re aiming for while losing the sale.

Seriously, check this out:

Best Buy and Amazon are both selling the same product from Accessory Genie. Amazon charges $6 less and delivers in two days. Best Buy charges $6 more and delivers in 6-9 days. Even with sales tax, Amazon crushes Best Buy by $4.62 and 4-7 days on this product, and people can throw some Mac & Cheese into their shopping cart before checking out. Best Buy CEO Hubert Joly’s sale tax comments may temper a few frustrated shareholders but haven’t swayed this informed consumer.

3. Long tail. It turns out that I buy quite a few things on Amazon that aren’t stocked by big parking lot stores. For example, a 1lb bag of chamomile tea from Croatia.

Maybe I’m an outlier, but based on my purchase behavior I don’t think this new sales tax does much to level the playing field against a company that sells a ton of tax exempt products, has lower prices, faster free shipping, and a far larger inventory than our local big parking lot stores.

Perhaps that’s why Target’s year over year sales grew by 1% while Amazon’s grew by 22%?

As I see it, this may increase my costs by around $10/month, but the benefits of shopping Amazon over big parking lot stores are still obvious to me.

If Target or Best buy borrowed the Byerly’s online model, that might interest me. Byerly’s has online ordering with online payment and drive-up pickup. As in, you never have to enter the store. Just drive up and they’ll load your car up with what you purchased. That’s convenient. In fact, it’s more convenient than postal packaging. Moms with a carload of kids would love this. Under the status quo, Amazon will continue to chip away at Target and Best Buy with or without sales taxes.

This post was written by Ed Kohler and originally published on The Deets. Follow Ed on Twitter: @edkohler

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Comments (7)

  1. Submitted by Keith Yockey on 05/23/2013 - 01:45 pm.

    Amazon Tax

    I guess the author never bothered to read the law MN passed.

    All MN added was an affiliate nexus provision to the bill. My guess is they never bothered to look at what happned in IL when similar law was passed. Amazon/Overstock pulled the affiliate programs and over 2000 businesses left the State. The result was a revenue loss, not a gain.

    That said, If you buy online, you owe Use Tax. Those that don’t pay this lawful tax are breaking the law. Just why is it that MN DOR is not enforcing existing law? No, writing nw (unconstitutional) law is always a better answer.

  2. Submitted by Ed Kohler on 05/23/2013 - 02:50 pm.

    @Keith, my primary focus was on whether this change will change people’s buying behavior. Whether it’s constitutional or not is a different question, and not one I’d qualified to answer.

    I get the impression that states find Use Taxes nearly unenforceable so are looking to other approaches to capture sales transaction revenues.

    As someone who’s does some business as an affiliate marketer, I think the PMA’s “2,000 businesses left the state” figure highly inflated, but would be interested to learn more about how they define a business and how they determined that that many businesses left IL.

    • Submitted by Keith Yockey on 05/23/2013 - 07:38 pm.

      Internet Sales Tax

      @ Ed,

      Even if all paid sales tax, studies in TX and CA show only a 5% shift in buying habits. The ‘fairness’ parts B&Ms whine so mush about is a myth at best. That $400 B&M item can still be found for $350 online, and $50 savings is just that. Don’t you drive an extra 5 miles to save $.02/gal on gas?

      B&Ms have the advantage of the buyer taking product home today. While they may complain that smartphone users are comparison shopping, many are, but are just as likely to shop across the street for better selection/customer service. B&Ms would rather blame the Internet/WalMart than their own sales force/customer service.

      re: Use Tax. State DORs have done NOTHING to educate the public that this law exists, just take a poll of average shoppers. DORs have many tools available, such as advertising, advising tax preparers, and yes, PUBLICIZED audits. Compliance costs could easily rise to 25% if MN DOR would attempt to do their job.

      MN new nexus law will bring little if any revenue. Just look at revenue figures from IL NC CT and GA where similar law was passed. They all saw revenue decreases, not gains.

  3. Submitted by Ed Kohler on 05/24/2013 - 10:16 am.

    @Keith, from the state’s perspective, I imagine that it’s much easier to collect taxes from a smaller number of sources than from self reporting by everyone who buys stuff online that may or may not be taxable depending on the person’s location and the item being purchased. Imagine if sales taxes at restaurants were not automatically added to the bill. I think we’d see quite a big difference in compliance there as well.

    • Submitted by Keith Yockey on 05/25/2013 - 03:04 pm.

      Internert Tax

      re: restaurants. That’s a poor analogy. Ask that restaurant how they would feel of required to file Sales Tax returns for 45 States, DC, all US territories, and all (565) Sovereign Indian Nations, yet that is what MFA will require all online sellers to do. States, like those B&Ms are only looking at their own back yards and not the big picture. They expect sellers 3000 miles away to know that clothing is not taxed, but fur coats are, or that peanut butter (food) is not taxed, but peanut butter cookies are (contain sugar). The list of ‘winner/losers’ is huge and changes constantly, and varies State by State. Keeping things simple is not in a lawmakers vocabulary.

      Then again, maybe MN sellers would enjoy knowing the ‘weird’ tax laws here in S.C. or the fact that they could be audited for collecting 6% tax when a 9% tax should have been assessed.

      • Submitted by Ed Kohler on 05/25/2013 - 08:21 pm.

        @Keith, I live in Minneapolis, which has higher sales taxes than Minnesota to pay for stuff like the Vikings stadium. If I go a mile east, I’m in St Paul, which has different sales taxes. And, if I go downtown, the sales taxes vary considerably depending on whether I’m buying clothes, food, food in a restaurant, beer, or beer in an establishment that hosts concerts.

        While it’s certainly a challenge for businesses, I don’t think it’s all that simple for consumers either. And, clearly, services could pop up that track all of the tax districts on behalf of online retailers. They probably already exist.

        • Submitted by Keith Yockey on 05/27/2013 - 12:04 pm.

          Internet Sales Tax

          “And, clearly, services could pop up that track all of the tax districts on behalf of online retailers. They probably already exist.”

          Yes they do, at a cost of $1 per transaction to 15% for every tax dollar collected. Compliance costs, as well as the audit risks from 46 States, will put many online businesses out of business, which was the plan of Big Box retail all along.

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