A battle is raging between large online retailers like Amazon.com and the state and federal government. On one side, proponents of a new tax bill are arguing that part of the skyrocketing success of Amazon.com and other large Internet retailers over the past 17 years can be attributed to their strategic positioning of warehouses that serve large markets like California from out of state. Due to the two decade old Quill Supreme Court decision that dictates that if you don’t have a brick and mortar storefront in a state you don’t need to collect sales tax, Amazon.com and other online retailers have been attracting customers with unfair low prices in droves, they argue.
It took nearly two decades and the biggest economic crisis since the Great Depression for states to attempt to collect the taxes they argue they were entitled to all along. In a move that had local brick and mortar retailers cheering, the California state government earlier last month demanded that Amazon.com begin collecting sales tax. While Amazon.com initially put up a fight and began fervently lobbying against the new law, they eventually capitulated.
A little over a month later and the battle has spread to the federal level, as two lawmakers within the House of Representatives, Rep. Steve Womack, R-Ark., and Rep. Jackie Speier, D-Calif., have staged a rare showing of bipartisanship in their proposed bill to tax all Internet purchases, whether or not customers reside in states where the companies have no physical presence. This bill will result in states recouping billions of dollars in sales tax money by implementing a single sales tax rate that will affect all commerce from out of state.
For cash strapped states this is an obvious boon, as a recent survey has shown that 59% of shoppers plan to make their purchases online rather than in stores this holiday season. Lawmakers argue that if the bill passes, it will not only provide states with valuable revenue but will also insulate local businesses from the unfair prices of out of state online retailers, and will perhaps even stave off the shuttering of stores and promote job growth, they hope. On the other side, opponents of the bill are calling fowl against what they claim is rampant government intervention that will harm businesses and kill jobs.
While no one is certain how this will affect online consumer shopping, there is plenty of speculation. In the past, product prices have been one of the biggest differentiators in terms of competition amongst online retailers. Knowing that consumers like low prices, retailers are engaged in a perpetual “fight to the bottom” in order to attract customers with bargains. Assuming the bill passes and you have universal online sales tax you essentially even the playing field (to a certain extent) and somewhat remove price as a huge differentiator. Because price will move towards equilibrium online retailers will be forced to innovate to attract business in new and creative ways (other than just trying to undercut with prices). Where there is innovation, the consumer wins, so expect some interesting moves likely in Social and Mobile Commerce within the coming months.