Two independent studies found that the absence of sales tax while shopping over the internet gives online stores an edge over traditional offline shopping.
Online shopping has taken the world by storm. These days people prefer walking into a store only to browse through a collection, review a products and find out its price. They then resort to online shopping to buy the same product because the prices are way lower. Ever wondered why online shopping websites have the liberty of quoting such low prices? Let's find out!
Two independent studies conducted at the Fisher College of Business at The Ohio State University found that the absence of sales tax has a major role to play.
For the first study, researchers looked into retail transactions for about 1.3 million households in 2012 and 2013 from five states that began collecting tax on Amazon purchases including Texas, Pennsylvania, California, New Jersey and Virginia. They found that sales on Amazon.com dropped by 9.5 percent in five states when the online retailer started collecting sales tax on the items purchased through the website. The effect was more prominent for larger purchases. There was a 24 percent drop in sales of products priced above $300.
"If you're going to make a big-ticket purchase like a big-screen TV or a laptop, there are currently huge incentives to go online to avoid the sales tax. These incentives are much stronger for large purchases than for small purchases, and our findings confirm that large purchases are indeed more sensitive to the introduction of this tax," said Brian Baugh, a doctoral student and author of the first study in a statement. "If that advantage disappears, like it did in these states, you're more likely to find another online retailer where you don't have to pay the tax or go to a local store where you can see the product and return it easier."
For the second study, researchers looked into proposed federal bills that if passed, would force online retailers to begin collecting sales tax. They found that the stock prices of online retailers dropped when news broke about possible legislation that would require them to collect sales tax.
Based on the findings of both studies, it is safe to say that customers tend to avoid online shopping when sales tax is involved. And investors are well aware of this fact!
"Internet taxation is an important issue that will be debated for years to come," Itzhak Ben-David from Ohio State's Department of Finance said in the statement. "But we're starting to learn how much internet retailers really benefit from not having to collect sales tax from customers in some states."
The researchers also found that weekly Google search volume for the term "Amazon" decreases in a given state after Amazon begins collecting sales tax in that state.
Other Reasons Why People Resort To Online Shopping
The first and biggest benefit is that consumers save a lot of time by avoiding crowded markets, especially during the festival season. During this time of the year, the streets are crowed with enthusiastic shoppers who want to lay their hands on just about anything. And then there are those long queues at the billing counter. On a busy day, a customer can spend an hour easily to get tpurchases billed. Online shopping websites make it much easier. There are no long queues and consumers can have their items billed and paid for in less than a few minutes.
Additionally, shopping portals offer many more deals and discounts than offline stores. These discounts can range anywhere between 10 percent of 70 percent. Moreover, many shopping portals also give users a sign-up bonus when they register on their sites. These include cash vouchers and additional discounts.
Online shopping websites also have more options for its shoppers. For example, people may not find a pair of pants in their size in a store and may have to visit various other stores to finally find something in their size. Online shopping makes this process a lot simpler.
Statistics show that more than 53 percent of Americans resort to online shopping. In 2012, U.S. e-commerce sales amounted to 289 billion U.S. dollars, up from 256 billion U.S. dollars in 2011.
