TIME Retail

This Is Amazon’s Real Achilles Heel

Amazon
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Online sales taxes are discouraging people from shopping on Amazon, according to a new study by researchers at Ohio State University. Regular online shoppers living in states that implemented a tax on Amazon decreased their spending on the website by 10 percent compared to states without the tax. The drop was even steeper for big-ticket purchases above $300, for which Amazon sales in taxed states were down 24 percent.

The lack of sales tax for online purchases has been a big advantage for Amazon over brick-and-mortar retailers for more than a decade. But an increasing number of cash-strapped states, which lose a reported $23 billion from uncollected sales taxes on online goods, are now making consumers pay taxes for Amazon purchases. In total 20 states now levy an Amazon tax, according to Bloomberg.

Online retailers can be compelled to collect taxes in states where they have a physical presence, like an Amazon warehouse, or in states where the retailer pays marketers to send traffic to their sites. Unsurprisingly, Amazon has been battling these tax laws for years. It lobbied the Supreme Court to rule on the legality of a New York online sales tax law, but the Court declined to hear the case in December. Amazon has said that it is in favor of a federal law allowing states to collect taxes from online shops in a more uniform manner. But the company also knows the tax issue is a significant threat to its future business. In Amazon’s latest annual report, the company noted the rise of online sales taxes as potential risk factor. “A successful assertion by one or more states or foreign countries requiring us to collect taxes where we do not do so could result in substantial tax liabilities, including for past sales, as well as penalties and interest,” Amazon wrote.

The researchers behind the study followed the purchasing habits of 245,000 households nationwide that spent $100 on Amazon in the first six months of 2012, then tracked the shift in spending when a third of those consumers were hit with the Amazon tax during 2012 or 2013. Though Amazon purchases slumped, the additional taxes didn’t actually help brick-and-mortar stores, which saw a mild two percent bump in sales. The bigger winners were competing online retailers, whose sales jumped 20 percent.

 

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