What You Need To Know About The Online Sales Tax Debate

As the debate around mandating an online sales tax rages on, Forrester remains convinced that 2012 will see no significant national change to the current tax structure.  As stated in my new report, “What You Need To Know About The Online Sales Tax” and a previous blog post around the issue, some are framing the debate in such a way that online-only companies like Amazon and eBay are tax-shirking delinquents; they’re not. Not only are they in compliance with current law, Amazon, who was at one point resolutely opposed to any new legislation, has made concessions to voluntarily start collecting tax and in fact, physical retailers may soon regret their staunch stances as the balancing act that Amazon avoided around nexus kept them squarely away from physical stores to date.  Now, that may change and create yet another headache for retailers as Amazon reportedly ponders stores.

So what does this all mean? There is likely to be a few more years of heated debate around the issue followed by a number of possible outcomes. eBusiness professionals should stay abreast of situation, but realize that this is not likely to be a game changer for the following reasons:

  • Tax has a negligible impact on online shopping behavior.  In a survey that was conducted in partnership with Bizrate Insights, we found only 8% of consumers said that tax was a priority consideration. Furthermore, only around one quarter of buyers said that the introduction of a sales tax would cause them to switch retailers.
  • Few consumers would head back to “main street” even if tax was collected.  While brick-and-mortar retailers are perhaps some of the loudest supporters of tax parity with the online channel, sales tax would not prompt a shift in wallet share. A small percent of consumers who did not pay sales tax on their last purchase said they would shift to a physical location with the imposition of a sales tax.
  • Consumers likely won’t bear the full burden of added cost.  Retailers may decide to reduce margins or promotions (e.g., free shipping) to keep prices low, especially in categories like consumer electronics that have high online penetration and stiff competition. This would have the most negative impact on small pure plays.
  • Most retailers already collect sales tax online. A significant portion of transactions online already collect sales tax because people purchase from online stores like BestBuy.com or Walmart.com, so the real amount that is being “lost” is a small fraction of total eCommerce sales. Forrester predicts this number wouldn’t be much larger the $10 billion.

To read more about the debate, our projected outcomes, and implications for the eBusiness professional, read the full report here.

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