So by now you've probably heard: Amazon.com (AMZN) is collecting sales tax.
For years, pundits have predicted that the rank unfairness of online retailers like Amazon being able to sell products cheaper than brick-and-mortar retailers -- simply because Amazon doesn't collect sales tax -- would have to end. For nearly as many years, other pundits (yours truly included) have predicted that when Amazon began collecting tax, its sales would suffer.
Now, a new research paper has emerged from Ohio State University. Its conclusion: The pundits were right -- and also wrong.
Where We Got It Right
More states are striking bargains with the e-tailer to force it to collect taxes on sales of merchandise shipped to customers in their states.
At last count, Amazon was collecting such taxes on sales in 20 of these 50 states. Florida is set to become No. 21 on May 1. This is bad news for Amazon. Ohio State's study surveyed 245,000 Amazon shoppers drawn from states charging as little as 4.5 percent sales tax (Virginia) to as much as 8.2 percent (California) and examined their shopping patterns over 18 months.
It concluded that for transactions greater than $100 in value, Amazon's direct sales to consumers in a state fall by about 10 percent after Amazon begins collecting sales in that state. The bigger the transaction, the more serious the hit Amazon takes.
For purchases of items costing $300 and up, instituting an "Amazon tax" results in a sales decline of 24 percent. The decline across all shopping carts, big and small, was 2.8 percent.
Where There's a Will, There's a Way to Avoid Taxes
And yet, despite these reported declines, Amazon.com grew its sales by 20 percent last quarter. How?
The answer basically boils down to one word: "Marketplace" -- Amazon.com's program that permits third-party sellers to advertise their wares on its website -- and even to outsource the software work, the warehousing, the credit card billing and delivery of the goods to Amazon.
The Marketplace simplifies the seller's life and guarantees Amazon a tidy revenue stream of fees. According to Amazon, about 30 percent of sales on its site now come from third parties selling goods on its Marketplace.
One thing that Amazon does not do for its third-party sellers, though, is force them to charge sales taxes. As a result, even in states where Amazon technically "collects sales tax," about 30 percent of the time, purchases made via Amazon do not involve the collection of sales tax at all.
Voila! No Taxes!
It doesn't take a psychic to guess what happened once shoppers discovered this workaround to the newly instituted "Amazon tax." Rather than buy directly from Amazon.com, they began to simply buy on Amazon.com -- from third-party merchants, "the vast majority" of which, say the study's authors, do not collect sales tax.
%VIRTUAL-article-sponsoredlinks%Ohio State's study shows a 61 percent increase in sales of big-ticket items via such third-party merchants selling on Amazon -- a sales increase that dwarfs the decline in sales directly from Amazon.com.
Non-Amazon e-tailers also benefited from the Amazon tax, by the way. Amazon's competitors enjoyed a 19.8 percent increase in sales post-Amazon tax. Presumably, these were primarily competitors who did not collect sales tax -- a theory that would explain why brick-and-mortar retailers, who charge the same sales taxes that Amazon began charging, enjoyed only a 2 percent increase in sales from the newly leveled playing field.
Which kind of defeats the purpose of these brick-and-mortar retailers lobbying to make Amazon collect sales tax in the first place.
Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Amazon.com.
10 Weird Ways States Tax You (and Don't)
Amazon's Sales Tax Move Changed Everything ... and Nothing
The Aloha State legislature, in an effort to preserve the uniqueness of their island paradise, has an "Exceptional Tree" tax allowance. Landowners can deduct up to $3,000 from their income for expenses such as pruning and fertilization for any tree designated as rare, big, old or a combination thereof. That's per tree. Top-bracket earners taxed at the state's highest rate (11 percent) would save $330 via the deduction.
The work must be done by a certified arborist, and the deduction can be claimed only every third year. The deduction was enacted in 2004. Hawaii has had a list of "Exceptional Trees" since 1975, and there are now estimated to be more than a thousand thus designated.
Maine legislators, a flinty bunch, don't see the harm in taxing anyone who deals in their official state fruit -- blueberries, at the rate of 1.5 cents per pound. The resulting revenues -- more than $1.6 million to state coffers in the fiscal year that ended in June 2013 -- are used to promote the crop and agricultural research.
The state also taxes harvesters and processors of hard-shell clams (known in the state as mahogany quahogs) at $1.25 a bushel, but state revenues for that are much lower. The taxes are levied at the wholesale level, but naturally, they end up being passed on to the consumer.
The Yellow Hammer State is the last in the union to tax a deck of cards as if it were a "vice," like alcohol and tobacco.
Taxing decks of cards, associated with gambling, was once fairly common, but most states have since set up separate control boards to regulate liquor and tobacco, and have let the cards slide.
But in Alabama, you'll still pay a 10 cent sales tax on any pack of cards you purchase. Retailers also have to pay $2 to the state each year for the privilege of selling playing cards.
"Merlyners" love their pollution-beleaguered Chesapeake Bay, the largest marine estuary in the U.S. In 2013, in part to meet federal pollution-control mandates, Free State legislators enacted fees on property owners in Baltimore and nine other Maryland counties, aimed at curbing storm water runoff. The fees were meant to fund programs to improve the water quality of the Bay.
Sounds simple enough, but the way Maryland legislators wrote the law has led to an angry backlash in some corners against this so-called "Rain Tax."
One way localities can calculate the tax is by measuring how much of a landowner's tract is "impervious" to precipitation seeping into the ground. So the more you've developed it with buildings, driveways, tennis courts and the like, the less it will absorb and the more you pay. That's how the tax is being implemented (through aerial and satellite photos) in Montgomery County, Md., a heavily developed suburb of Washington, D.C., and landowners are up in arms.
Other counties have rebelled, opting to pay for the pollution control programs out of general funds rather than pass the cost onto landowners. Maryland’s Republican candidate for governor, David Craig, has made the law's repeal part of his platform for the 2014 election.
The Sunflower State is among a bevy of jurisdictions that allows sale of lower-alcohol beer (the term of art is "cereal malt beverage") in convenience and grocery stores.
But Kansas also taxes "3.2" beer differently—and there lies the rub. At a liquor store, all products, including, say, a conventional six-pack of Budweiser (with 5 percent alcohol by volume), are taxed at a special rate of 8 percent. At the convenience store down the street, however, ordinary sales tax is levied on the lower-alcohol, cereal malt beverage bottle of Bud. That often ends up being more than the 8 percent alcohol tax. In Pomona, Kans., for example, the effective rate on the weaker beer would be 9.7 percent. Go figure.
When it comes to taxation, the rule is generally the stronger the booze, the higher the tax (that's why Kansas's beer tax scheme is an anomaly). California follows that curve, but at 100 proof, you better be ready to pay through the nose.
Distilled spirits are taxed at $3.30 a gallon if below 100 proof, or 50 percent alcohol. Go over that, like with Bacardi 151, and the tax doubles to $6.60. Maryland also notes the 100 proof point, but it only adds 1.5 cents per proof, per gallon to the relatively modest liquor tax of $1.50 per gallon, taking the Bacardi 151 to $2.27 per gallon.
Entertainment venues pay a business tax to the Silver State ranging from 5 to 10 percent on admissions fees (and food, drink and merchandise sales) whenever there’s live entertainment going on.
There are exemptions, however, including this one, for businesses that provide " ... Instrumental or vocal music, which may or may not be supplemented with commentary by the musicians, in a restaurant, lounge or similar area if such music does not routinely rise to the volume that interferes with casual conversation and if such music would not generally cause patrons to watch as well as listen."
So your piano player can play "Feelings" softly and even crack a few jokes, tax-free, for your business. Just make sure they're not funny enough to attract attention.
Want to own a plush or fuel-thirsty ride? That’ll cost you extra in the Garden State.
Cars that cost $45,000 or more or have a combined EPA fuel-mileage average of 19 or below pay an additional 0.4 percent on top of New Jersey’s 7 percent sales tax.
Businesses in D.C. that sell food or alcohol are required to charge customers 5 cents for every paper or plastic disposable bag they take. The store gets to keep a penny, and the balance goes to a government fund dedicated to cleaning up the Anacostia River.
Consumers and storekeepers grumbled at the program's debut in 2010. It has raised about $7 million so far, below expectations, but the program’s designers see this as a positive sign -- that shoppers have opted to bring their own reusable bags.