The Marketplace Fairness Act and Shopping Behavior

Marketplace Fairness ActThe long-debated Internet sales tax issue is nearing an end with the U.S. Senate’s passage of the Marketplace Fairness Act by a binding vote of 69 to 27. Now the bill must go before the U.S. House of Representatives for approval.

The legislation would allow the 45 states, and the District of Columbia, that currently charge sales tax to require large online retailers to collect tax on purchases made by their residents. The law would only apply to online sellers that have sales of at least $1 million in states where they don’t have physical operations. Under current law, online sellers are only required to collect tax in states where they have a physical presence.

Proponents argue that the proposal would not create a new tax, but rather enforce the collection of taxes already charged at brick-and-mortar shops. Furthermore, most states require shoppers to pay a use tax when a sales tax isn’t collected at online checkout, however few consumers actually follow through. Studies estimate that more than $12 billion in additional sales taxes will be collected from online purchases each year if the bill is enacted.

On the minds of both both online and brick and mortar retailers is how shoppers’ behavior will change if the legislation is enacted. Recent surveys indicate it is a close call as to whether or not the sales tax will drive consumers away from the Internet and into physical stores.

In a survey of 2,500 consumers by advisory firm AlixPartners, close to 30 percent of online shoppers said they will shop more at brick and mortar retailers if the tax becomes a reality. Nearly half of respondents, though, say that an Internet sales tax will have no effect on their online shopping habits.

A survey of 400 consumers by Ask Your Target Market, conducted April 25th, also revealed that many consumers do not plan to change their shopping patterns. While 24 percent of online shoppers say that an online sales tax will have a very large impact on their online shopping decisions, 47 percent say their shopping decisions may be somewhat impacted and 29 percent say their shopping habits won’t change at all. The survey also revealed that 8 percent of respondents do all of their shopping online, 24 percent do most of their shopping online, 32 percent do about half of their shopping online and 6 percent never shop online.

Conversely, a PricewaterhouseCoopers (PwC) survey of more than 10,000 consumers found that 23 percent of buyers research consumer electronics online and then buy products in-store, while only two percent do the opposite. Shoppers are attracted by the ability to get products immediately, and to see and try them in the store, according to the report. “We also can’t emphasize enough that the physical store remains the centerpiece of the purchase journey for many categories,” PwC added. “In nine out of 11 categories, in fact, the majority of consumers use physical stores for both researching and purchasing the products they want to buy.”