Internet Sales Tax Won’t Save B&M From Amazon

internet sales tax will not tip the scales back in favor of brick and mortar retailers

It is said that two things in life are unavoidable: death and taxes. With the advent of the internet taxes became avoidable in the US. Well, sort of. Under the US constitution and commerce laws a business is required to collect sales tax only if it has a presence in the customer’s state. Consumers have taken advantage of this situation to avoid paying sales tax on many online purchases, since giants like Amazon have no physical presence in most states.

Traditional brick and mortar retailers claim that lack of sales tax gives an unfair advantage to online retailers which can offer a better price and unfairly compete for customers. In addition to the complaints from the B&M camp, states are strapped for cash and see internet sales as missed tax revenue. Federal online sales tax legislation is poised to arrive sooner or later. While it will definitely bring more revenue into state treasuries, it is not the panacea that B&M retailers hope will get shoppers back into their stores.

Land Before Internet

In the olden days before the internet consumers had two options when buying a product: go to a brick and mortar store, or use a mail order catalog. If the company selling the product via a catalog had no business presence in the customer’s state then no sales tax was collected. US constitution states that the federal government has the sole legal right to regulate commerce among the states. This means that historically a state could not compel a business outside of its jurisdiction to collect sales tax on its behalf.

This was an important and necessary provision due to the fact that there are literally thousands of sales tax jurisdictions in the country. It is not just states that can impose sales tax. Counties and municipalities have this option as well, which creates a myriad of sales taxes to keep track of without even considering the logistics or remitting collected tax to the appropriate destination. Because of this the US Supreme Court has ruled that it would be an undue burden for businesses to have to deal with out of state sales taxes.

Revenue Too Big To Ignore

Everything was good and well before the internet. Catalog sales were a tiny portion of consumer spending, and neither states nor B&M retailers cared that out of state companies weren’t charging sales tax. As internet sales have grown, the lost revenues could no longer be ignored by both the states and the B&M retailers. It is estimated that states lost $23.3 billion in 2012 to the internet tax black hole. Revenue losses this big are hard to ignore.

B&M retailers are also feeling the pinch. The latest trend among consumers has been dubbed “showrooming“. Showrooming is a phenomenon where consumers go to a B&M retailer to browse merchandise, and then find and order the product for a cheaper price online. Thus the B&M retailer acts as a sort of showroom for the online retailer while losing sales in the process.

Though B&M retailers have blamed their sales tax burden as the primary culprit behind this massive loss in revenue, the fact is that there are far more advantages to shopping online than a mere sales tax discount. The real problem is that retailers are out of touch, and if they want to stay relevant they will need to address their shortcomings rather than blame online giants like Amazon for their misfortunes.

Why Online Shopping Beats B&M

With Amazon now supporting internet sales tax legislation it’s only a matter of time before all major online retailers begin collecting sales tax. B&M companies are hoping that sales tax will even out the playing field, but there are many advantages to shopping online that B&M retailers simply can’t match. As an example, here are some major advantages that Amazon has over B&M stores.

Product Reviews

Product reviews are a staple of almost all online retailers, but none of them do it as well as Amazon. This is a critical piece that’s missing from B&M stores. Sure, there may be sales reps you can talk to at a B&M. The problem is they’re usually clueless or on commission, and in either case you will not get a useful, honest review of a product. There’s nothing that can compare to reading the experiences other people had with a product, and is a major influence on a purchasing decision.

Price History

All products offered on Amazon are cataloged by the web site Camel will show you what the price history of the product was since the moment it was offered on Amazon. This lets you decide whether you should get the product right now or perhaps wait a bit for the price to fall. You can also sign up for an alert when the price of a product drops to your desired value.

Same Day Delivery

Currently in its infancy, same day delivery is on its way from Amazon and other online retailers. Currently Amazon offers free two day shipping for fee of $79 per year, with next day shipping an option at $3.99 per item. Now that it will charge sales tax Amazon can build sprawling warehouses right in the metropolitan areas it previously avoided. Same day delivery will then become much more feasible, and ironically make Amazon an even bigger threat to B&M.

Subscription Discounts

Amazon offers a “subscribe and save” program which allows customers to purchase products on a regular schedule that they define. This is quite useful for saving both time and money by automating purchase and delivery of common household items. For instance, instead of lugging a giant 20 roll pack of toilet paper from the supermarket, you can subscribe to have it delivered every few months. It’s possible to get up to 20% off your subscription order in addition to the convenience of free delivery, which more than offsets the sales tax.

The Future Of Brick & Mortar

Will B&M stores die out due to competition from online retailers? Probably not. Some will certainly decline and disappear like Tower Records music stores and Borders bookstores did in the last decade. The ones that survive will be forced to adapt to a new reality that merely putting a bunch of products under a roof and sprinkling them with useless sales people will no longer cut it as a business model.

B&M retailers will have to focus on improving customer service and matching the conveniences provided by online retailers. They will be forced to become more creative and investing more into training and quality of their sales staff. Only then will they be able to reclaim the customers they have been slowly losing over the last decade.

This post includes It’s time to pay tax by Images Of Money used under the Creative Commons Attribution 2.0 Generic license.

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