Amazon Suffering from Sales Tax Collections?

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Once exempt from most state and local sales taxes, Inc. (NASDAQ: AMZN) now collects the taxes in at least nine states, including New York, Texas, California, and Massachusetts. Some early research indicated that tax collections were unlikely to hurt Amazon's sales, but new data is showing that Amazon did indeed feel the impact of the higher prices it was forced to charge in some states.

Best Buy Co. Inc. (NYSE: BBY) showed improved online sales in three states where Amazon began collecting taxes. Best Buy, which had a physical presence in those states already, never did not benefit from a sales tax exemption.

E-commerce research firm ChannelAdvisor looked at sales of the Amazon partner sellers it works with in California and found that the state's sales were higher sales in other states by 5% to 10% before Amazon began collecting California sales tax in mid-September. In the week before the company began collecting taxes, sales in California spiked to 70% above sales outside the state.

By early November, sales in California had fallen to as much as 10% below other states. Amazon probably lowered its prices by enough to compensate for the sales tax hit, but the question now is how that will affect the company's quarterly results. Even Amazon doesn't know what to expect - in November the company forecast operating results ranging from a loss of $490 million to a profit of $310 million.

This levelling of the playing field may help, but in the longer run Amazon figures to continue to dominate on-line sales and to make a profit doing it.

Filed under: 24/7 Wall St. Wire, Internet, Law, Retail Tagged: AMZN, BBY