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Will Online Taxes Change Buying Habits?

Some of the folks in the US most opposed to taxing online purchases are reversing their position in the wake of budget deficits.

State governors who have so far refused to tax online purchases are reversing their positions in order to collect more revenue. State sales taxes in the US vary from state to state, ranging from zero in New Hampshire to more than 8 percent in New York. Some states don't tax food and clothing, others tax everything.

According to the Wall Street Journal, Republican governors — who typically frown on raising taxes — are joining their Democratic compatriots in favor of taxing sales from retailers such as Amazon.

Currently, sales taxes are collected from online retailers that maintain a physical presence in the customer's state. If Amazon.com doesn't have a warehouse facility in your state, chances are you don't pay sales tax on your Amazon purchases.

Taxing online purchases could be a boon to brick-and-mortar retailers, such as Best Buy, which are suffering from a practice called showrooming. (See: When in Doubt, Redesign.) Shoppers will go into retail stores to test drive potential purchases, then buy online. In some cases, online purchases will save buyers sales tax. In other cases, online retailers offer lower prices because of low overhead and economies of scale.

I think this shift will change buying habits, but not in the way it's intended. Customers will purchase items and they will pay sales tax — that seems inevitable. What they might balk at is shipping. In a typical online purchase, buyers will get a subtotal, tax, then several shipping options. Some retailers offer free shipping at times of the year or with a certain level of purchases. When the shipping balance is zero, a sales tax doesn't look so bad on the total.

However, I've seen shipping costs equal to or above the price tag of the item. I might pay the tax with free shipping or I might pay for the shipping if I don't pay a tax. But for those of us unaccustomed to both, driving over to the retail store might look like the better option. Ordering in bulk is also a possibility — you pay one shipping fee for more products — but as we've seen in electronics, such incentives sometimes lead to overbuying and excess inventory.

Do you think online taxes will change buying habits? How about those of you outside the US — I'd be interested in hearing how tax laws work (or don't work) from your perspective.

4 comments on “Will Online Taxes Change Buying Habits?

  1. Cryptoman
    July 17, 2012

    As far as I know, in the EU online purchases are taxed at the same rate as retail. In the UK, for example, standard VAT rate of 20% s applicable to all online purchases. I cannot recall a time when online purchases were never taxed in the EU. Tax does not stop online shoppers though since the items cost less and there are fantastic deals all around the year. Such bonuses make online shopping attractive. For high value items, one does feel the pinch of the added tax though especially at a rate of 20%!

    However, for the US consumers since tax-free online shopping has been the standard thus far, initially a decline in online shopping will probably be inevitable. However, I think online shopping will eventually go back to normal once the buyers get used to the new facts of life.

    As they say, there are two things one cannot avoid in life: death and taxes! 🙂

  2. Barbara Jorgensen
    July 17, 2012

    20 percent–ouch! That's a big hit. And that's based on where the order originates or where it is shipped? That issue gets kind of confusing in the US. I think people try to have items shipped to a non-tax state to save on sales tax. Presumably, someone from that state ships it to the buyer. It sounds like a lot of trouble, but I gues it depends on how much you save versus how long you are willing to wait for your purchase.

  3. Ashu001
    July 30, 2012

    Barbara,

    I have seen this phenomenon first-hand especially with frequent Buyers/Sellers.

    They rent a Mail-box in a No Tax state and then arrange to have stuff shipped from there to them!!!

    The Main Thing about Taxes is that it gives people  an incentive to avoid paying them.A lot of people have gotten very-very smart at Tax-Avoidance.A whole industry has sprung up around this issue!!!

    Regards

    Ashish.

  4. Ashu001
    July 30, 2012

    Barbara,

    For Online Shopping to take a massive-massive Hit(because of imposition of a Sales Tax);one would have to see the major convenience factor get knocked off.

    In particular,Imagine a sceanario where Gas Prices stay constantly above $4/Gallon in America ,People will have no choice but to cut down on their Driving Habits big-time.

    As it is in Europe,Gas Prices are close to $10/Gallon so people anytime prefer the convenience of Getting products shipped to them.

    Costs make a massive-massive difference in the whole Decision making process.

    Regards

    Ashish.

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