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 less than $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 diapers, baby food, baby clothes, adult food, adult 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:

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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.

14 thoughts on “Amazon Sales Tax Is Imminent”

  1. Amazon is cool if you don’t mind losing local retailers. If you care about urban form, one should really put your money where your mouth is and spend it in the local storefronts that help define great urban spaces. An Amazon warehouse in some distribution center in River Falls isn’t going to do much to help improve our neighborhoods and urban environment.

  2. @Tarah, that’s a great point. I do shop local retailers such as Peapod, Baby on Grand, and Moon Palace Books for kids stuff and books, but I think we’d actually be better off in places like Minneapolis if we found better uses for land near Hiawatha & Lake or Nicollet & Lake than building huge parking lots to sell commodity products that can be purchased move conveniently online. I feel like my Amazon purchases compete most heavily with retailers who build car-dependent big parking lot businesses that do more to hurt than help our neighborhoods and urban environment.

    Also, if I’m choosing between getting in a car to make a local purchase, or making a purchase online in a few minutes then using my time savings to take my daughter for a walk around my neighborhood, I think my neighborhood and our urban environment may come out ahead.

  3. I agree that it won’t change my Amazon habit either but it will at least treat all retailers equally, which I think is important.

    What it will also do is provide a nice bump to the sales tax collections for the state, which had become a smaller share of revenues as so much purchasing moved online. A diversified and stable tax base makes it much easier to budget.

  4. I agree with you about this not affecting shopping habits and trends. But I do think this is a positive development for the states that will receive new revenue and it does correct a basic unfairness. Before this act, states could not subject an item to sales tax unless there was “nexis” or a connection between the retailer and the state (e.g. bricks and mortar in the state). That is an antiquated concept and ignores the fact that web sellers like Amazon realistically have just as much connection to Minnesota as Best Buy (where I no longer shop either by the way – unless it’s Saturday afternoon and I need that miscellaneous cable TODAY).

  5. @Aaron & Barry, agreed on expanding the tax base in an equitable way.

    Barry, some states argued that Amazon had a physical presence due to Amazon affiliates. If Amazon had people with a physical presence in a state who drove traffic and sales on Amazon on a commission basis, the states considered that to trigger a “nexis”. That seemed like a bit of a stretch to me, but some states did that and Amazon reacted by canceling their affiliate relationships in those states at the time.

  6. I agree with everything said here(comments & the post). It won’t change my habits, it will increase sales tax base, all good things.

    I also feel it will remove the “no sales tax is unfair” argument and force businesses to actually focus on themselves. It’s usually terrible or pushy customer service (or sales agents) that cause me to go online, or when places stop carrying something because the profit margin is too thin. I only recently started buying some specialty flour online after a bad experience at the local Italian grocery store.

  7. Ed, any idea if this impacts the affiliate program in MN?

    My $25/month isn’t much but it’s beer money. 😉 (Hm, step up my game and it might offset the sales tax, too!)

  8. @Eric, I haven’t heard anything on what Amazon’s reaction to this might be. It seems like canceling their MN affiliates could be one option based on what they’ve done in other states.

  9. Historically I think they used it as a threat when a sales tax was being proposed, and/or feared that affiliates meant that they had a “presence” in the state which would lead to the tax. I guess we’ll see!

  10. Got the answer in the email today: “We are writing from the Amazon Associates Program to notify you that your Associates account will be closed and your Amazon Services LLC Associates Program Operating Agreement will be terminated effective June 30, 2013. This is a direct result of the unconstitutional Minnesota state tax collection legislation passed by the state legislature and signed by Governor Dayton on May 23, 2013 …”

  11. Got the same letter. It is frustating to be kick out after being a seller with Amazon for 15 years. Considering moving out of Minnesota.

  12. @Eric, looks like implementing this tax isn’t going to bring in the sales tax revenues expected from Amazon, and also decreases the revenues earned by Minnesotans who played a small part in selling products from Amazon to people all over the world. Is this was Target and Best Buy’s lobbyists were expecting?

  13. @Eric, if the folks projecting the revenue potential of the Amazon tax were the same folks who projected revenue potential of e-pulltabs I suppose we shouldn’t be all that surprised. What’s surprising is that they appear to still be employed by the state.

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