Wall Street keeps an eye on Amazon's sales tax hit

Thu Jan 17, 2013 8:55pm EST
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By Alistair Barr

SAN FRANCISCO (Reuters) - Amazon.com Inc's unfamiliar role as tax collector may have dented its crucial holiday quarter by reducing the online retail giant's longstanding price advantage over its rivals in several major markets.

Sales growth in California for merchants who sold their goods via Amazon lagged growth in the rest of the country after the company began collecting state sales tax there on September 15, according to an analysis by e-commerce firm ChannelAdvisor.

And Best Buy Co, Amazon's arch-rival in high-priced consumer electronics, saw holiday online sales increase in the three states where Amazon started collecting sales tax: California, Texas, and Pennsylvania.

"There was a little softness in states where Amazon is now collecting sales tax," said R.J. Hottovy, a Morningstar analyst. "It levels the playing field for brick-and-mortar retailers."

Critics of Amazon have long railed against what they deem an unfair advantage, because for years most other retailers have had to collect state sales tax on online sales because they operate physical stores in those states.

But many states, hungry for extra revenue to plug yawning deficits following the financial crisis, introduced laws requiring that Internet-only retailers also collect sales tax. Brick-and-mortar retailers hope the requirement will trim Amazon's price advantage and eventually help them recoup lost sales.

Amazon's fourth-quarter results - due on January 29 - should provide clues as to whether U.S. consumers changed their shopping habits when faced with higher taxes on their purchases.

"This makes Amazon equal to everyone else. They no longer have that sales tax advantage," said Anne Zybowski, vice president of retail insights at Kantar Retail. "If this had happened to Amazon when they were just a bookseller years ago, they may not be as big as they are now."   Continued...

A zoomed illustration image of a man looking at a computer monitor showing the logo of Amazon is seen in Vienna November 26, 2012. REUTERS/Leonhard Foeger