1. Wall Street Keeps An Eye On Amazon’s Sales Tax Hit
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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.”
PRETAX SURGE
Wall Street on the whole is betting that online retailers like Amazon and eBay Inc fared better
than rivals rooted in the physical world. On Wednesday eBay posted marginally
better-than-expected results for the fourth quarter.
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2. But some analysts say investors may not appreciate the extent to which revenues of
Amazon’s competitors might have been suppressed by the sales tax effect. Amazon does not
break out sales in individual states or markets.
Amazon began collecting sales tax of 7.25 percent to 9.75 percent in California about two
weeks before the start of the fourth quarter. It started collecting sales tax in Pennsylvania in
September, and in Texas in July.
ChannelAdvisor, which helps merchants boost sales online, analyzed clients’ sales growth on
Amazon in California and in the rest of the country before and after the Golden State’s internet
sales tax kicked in.
From July through early September, sales growth in California for Amazon clients was 5
percent to 10 percent higher than in the rest of the United States. But the week before the
September 15 start of the tax, sales growth spiked as much as 70 percent above growth in the
rest of the country as buyers rushed to beat the deadline.
“The surge before the tax went into effect was much larger than I thought it would be,” said
Scot Wingo, chief executive of ChannelAdvisor.
After September 15, California sales growth rose at the same pace as the rest of the country.
But in early November, sales growth slipped as much as 10 percent below the rest of the nation,
ChannelAdvisor data showed.
During one of the busiest holiday periods, from late November to early December, sales
growth dipped further in California. Only toward the end of the holiday period did client sales
growth in California recover, the data showed.
EBay, another Amazon rival, is an investor in ChannelAdvisor. Wingo also owned Amazon
shares but sold them in the fourth quarter for personal tax reasons, he said.
The California tax impact was particularly pronounced on items priced at $200 to $250, Wingo
said.
Best Buy’s solid showing during the holidays may provide another clue to the tax’s impact.
Overall, Best Buy reported better-than-expected holiday sales last week.
Despite the tax changes, Amazon’s consumer electronics prices were still at least 5 percent
below Best Buy’s during the holiday season, Kantar’s Zybowski said. But Best Buy may have
benefited from even a small change in this area.
“Particularly in consumer electronics, any narrowing of Amazon’s price advantage at the
margin is important because Best Buy brings service and other shopper benefits to the
category,” she said.
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3. An Amazon spokesman declined to comment when asked if the company saw an impact on
fourth-quarter sales from the collection of sales tax in the three states.
In the past, Amazon executives have said there was little or no impact from such changes in
other regions.
PRICE CUTS BY AMAZON?
Several analysts said that shoppers use Amazon not just because they can find a bargain, but
also because of its vast selection, convenience, fast shipping and returns. Regardless, the
retailer wasted no time in discounting to try to safeguard its edge.
Amazon probably lowered prices 8 percent to 9 percent on items most affected by this,
although it is tricky to separate such reductions from the usual holiday season promotions that
were also happening, Wingo said.
Extra price competition may dent Amazon’s profitability in the fourth quarter, Morningstar’s
Hottovy said.
Amazon is expected to report revenue of $22.3 billion, according to Thomson Reuters I/B/E/S.
“Amazon was wise to hold on to the sales tax advantage as long as they did,” said Sucharita
Mulpuru, an analyst at Forrester Research. “They obviously felt that they were strong enough
now, with enough other profit pools, that acquiescing to state authorities would not have an
adverse impact on their business.”
(Editing by Edwin Chan, Leslie Gevirtz, Nick Zieminski and Phil Berlowitz)
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