Internet Sales Tax Laws

Amazon Tax Blues

Online sales tax fail

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Despite difficulties presented by federal law, many states have recently instituted sales taxes on online purchases from out-of-state vendors. A study of the results of the so-called Amazon tax-referring to the online retailer most affected-as it operates in five states (California, Virginia, Texas, New Jersey, and Pennsylvania) found that it discouraged consumers from buying through Amazon.

The study was issued by the National Bureau of Economic Research, and was conducted by Brian Baugh, Hoonsuk Park, and Itzhak Ben-David, all of Ohio State University. The taxes, which went into effect in 2012 and 2013 across those states "resulted in a large decline across all states of 9.5 percent in the value of products (net of sales tax) purchased on Amazon." The authors concluded that this effect was not attributable to people upping their Amazon purchases just before the tax went into effect.

"Most of the gains in 'leveling the playing field' are garnered by the online operations of retailers" rather than brick and mortar stores, who often complained they were being outcompeted by Amazon. The study found a 19.8 percent increase in "purchases at the online operations of competing retailers" (who already had some physical nexus in the states, and thus had already been paying sales tax, so the "Amazon tax" eliminated an Amazon price advantage), but only a 2 percent "increase in local brick-and-mortar expenditures" at that same set of retailers.