By Jonathan Barsade
In 2014, three researchers at Ohio State University wanted to investigate how the so-called ‘Amazon Tax’ would affect the ecommerce company. Many states had passed laws requiring large online retailers to collect and remit sales taxes. The paper, ”The Amazon Tax: Empirical Evidence from Amazon and Main Street Retailers,” discovered that households in California, New Jersey, Pennsylvania, Texas and Virginia reduced their Amazon spending by 9.5 percent in the 12 weeks after those states implemented an online sales tax.
Spin artists have used this study to argue that sales taxes kill ecommerce, but here’s what they neglect to mention: those same households spent 19.8 percent more with other online retailers and an additional 2 percent more at brick-and-mortar stores. For big-ticket items ($300 or more), consumers were most likely to shift purchases from Amazon to other merchants. Taxes did not reduce online spending. Rather, the study proved that online consumers are price sensitive.
This study is good news for ecommerce but bad news for the lobbyists trying to preserve an unfair system in which physical stores collect sales taxes and online businesses don’t. Congress has been trying to fix this problem years, but lobbyists have attempted to eviscerate every proposed bill, including H.R. 2775, the Remote Transactions Parity Act (RTPA), which was introduced into the House of Representatives on July 1, 2015.
The RTPA, sponsored by Representative Jason Chaffetz of Utah, has a lot going for it. The bill mandates that sales tax technology is to be provided by commercial companies and paid for by the states. It has a four-year phase in process to ensure that smallest ecommerce businesses have the most time to comply and adapt. In the event that an ecommerce retailer is audited, the bill places the burden of proof and associated expenses on the software provider rather than the business.
This is a remarkably good deal for the ecommerce world – far better than anything proposed previously. The RTPA will have no impact whatsoever on the growth and success of ecommerce business. Consider that Amazon already collects sales tax in 25 states and still netted $23.18 billion in sales during Q2 2015, a 20 percent gain over last year. Product sales were up nearly $2 billion over Q2 2014, and Amazon generated $92 million in profit, much to the surprise of investors.
The internet tax haven is the legacy of Quill Corp. v. North Dakota, a 23-year-old Supreme Court decision. The justices ruled that remote sellers do not have to collect and remit local sales taxes unless they have nexus in the state where the customer lives. At the time, there was no software that could manage sales taxes across 10,000 jurisdictions. Today, software automates the entire process; collecting taxes in 5,000 jurisdictions is no harder than collecting in one. Justice Anthony Kennedy intimated recently that the Court is ready to revisit the Quill decision.
The sales tax debate is becoming irrelevant because all commerce is ecommerce. Brick-and-mortar businesses are migrating to the internet, and many pure ecommerce business have moved from ‘clicks to bricks.’ Physical stores are becoming digitized environments, connected to an ‘Internet of Things’ that processes payments, tracks shoppers and brings physical data to the cloud.
The distinction between online and offline retail is as thin as the argument to tax physical businesses, but not their online competitors. Introducing sales taxes into ecommerce is not the doomsday scenario the spin machine has woven; it’s just the right thing to do.