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  • Online Commerce and Sales Taxes

    Posted by Carl from Chicago on April 23rd, 2009 (All posts by )

    Recently I needed a new pair of running shoes. I talked to someone who knows way more about the topic than I do and scribbled down her instructions of what to buy.

    I have a few choices. There is a big sports supply store down the street, and there are various running stores within a couple of miles of my house.

    Since it was crappy outside (it still is, but we have high hopes for this weekend here in Chicago) I did something else – went online to Zappos. Zappos is the famous online shoe store that is supposed to have great prices, service, etc…

    I was able to pick out pretty much any type of shoe – they had the specific model I was looking for, along with online reviews of the shoe comparing it to its predecessors (and successors). I have wide feet and wanted a certain size, width and color, and no problem finding it.

    The price was good and there was free shipping and no sales taxes. In Chicago, the retail sales tax rate is 10.25%, so that is a relatively big deal, it was about $12 savings relative to purchasing it in a store.

    What stunned me, however, was the fact that the shoes arrived THE NEXT DAY. I don’t know if they have some sort of warehouse here in Chicago or how it happened, but I was totally amazed to find the box at the front desk of my condominium the very next morning. FOR FREE.

    I think that high sales taxes and the ease and selection of online commerce, combined with reasonable and fast shipping, is severely going to crimp retail here in the United States. I know that people have been talking about this for years but in an age of frugality and very high local sales taxes the allure of online shopping has increased significantly.

    The search engines within these sites have also been improved. It is much easier to find exactly what you want, and many / most items have a lot of reviews. I figure if it is 2 or 3 reviews I am suspicious that they might have been “planted” by the online firm but when you have 40-50 reviews that are very detailed, saying the pros and cons of what you are looking at with some clarity and consistency, you can have more confidence that what you are buying is right for you. Here is the most fun search engine selector, by the way.

    Another subtle thing about shopping online is that you get used to buying more and more items online. For example, if you go to Amazon, you can get pretty much anything from there. I recently bought a coffeemaker and coffee from there, something I would have thought of as ridiculous a few years ago (can’t you just go to a store?) but the price was right and the reviews let me know I was getting exactly what I was looking for. Since Amazon already has my info, I didn’t feel like I was giving my personal info out to another random web retailer that might not be there in five minutes. I also recently bought a big-screen TV from Amazon – free shipping, no taxes, and someone even came to set it up and take away the empty box (“white glove service” they called it) and it was a great experience, way better than going to now defunct Circuit City or Best Buy.

    I realize that the “buzz” on online commerce has died down and everyone has moved on to the next faddish type item. However, it is important to note that the most significant impact of items like this happen over time and not always when it makes headlines.

    The confluence of 1) high sales taxes 2) reasonable and fast shipping 3) vast selection 4) solid reviews and search functionality 5) comfort with the system 6) reasonable confidence in information security 7) ability to purchase setup and have them deliver heavier items to your door is going to really put a hit on high-cost and highly taxed retail.

    Cross posted at LITGM

     

    12 Responses to “Online Commerce and Sales Taxes”

    1. David Foster Says:

      A huge problem for brick & mortar stores is that they are becoming “demo centers” for on-line merchants. People go into Barnes & Noble to browse, then–if they see an expensive book they like–order if from Amazon. Similarly, they check out the look & feel of a laptop at a store, then buy it online.

    2. Shannon Love Says:

      If nothing else, attempts to tax online commerce will make it clear to most people that “sales” taxes are really “buying” taxes.

      I do have concerns about switching so much commerce to a handful of very large internet retailers. I can’t decide if this will decrease local small business or whether it will increase them. Small businesses thrive on specialized knowledge of local markets. I have a local family owned hardware store that does very well even though it is bracketed by large home improvement box stores. It thrives by having a knowledgeable staff (mostly bored retired quys) and one of every little fiddling part or fastener you could possibly want.

      The internet might also support local speciality shops by creating interest in products people didn’t even know existed. For example, someone might become interested in fine coffee after buying some on the internet and then seek out a local coffee shop in order to get a more sensory experience in choosing coffee. I’m pretty sure the hardware store gets business because people by low cost tools elsewhere but then need specialized parts for the projects they then carry out.

      The “Demo” store problem is very real. It did in the mom&pop computer shops that dominated the PC business for twenty years. People who go to these stores to examine a computer and talk to a knowledgeable sales person and then go across the street to a box store or a catalogue to actually buy. I think local stores will have to specialize in things that people need to physically inspect before they buy. My local hardware store seems to thrive on the basis of people needing to find a part that fits another part they already have. Buy such things online is almost pointless when something that is a fraction of a millimeter off is useless.

    3. MAS1916 Says:

      This is also why places like California will never realize a great deal of additional revenue from increased sales taxes.

      Consumers have choices. They will maximize value wherever possible. If the state drives up costs to the consumer, the consumer will seek other alternatives. The net result will be bad for any local economy that elevates costs to the consumer via taxation.

    4. Tatyana Says:

      NY State won the case against Amazon, I think, so when you enter NY shipping address @Amazon, you’re automatically charged sales’ tax. Which our sweet mayor is going to increase, naturally.

      The logical way for small businesses that suffer from lost revenue due to “demo center” phenomena is to become de-jure demo centers. With manufacturers paying their consulting commissions instead of income from sales. It should be easy to set up at the online sales site: add couple more lines asking the buyer where he went for demonstration and when, and/or name/number of the presenter.
      It’s a similar business model to ones already employed by the construction goods showrooms; they have sales’ reps and no actual sales, but are being paid by manufacturer according to number of orders they have received later, sometimes months after the presentation.

    5. David Foster Says:

      I think we will be seeing many creative attempts by state & localities to find new things to tax.

      One of the most creative was, IIRC, West Virginia, who argued that they should be able to charge imputed sales tax for diesel fuel on barge tows traversing their rivers, even if no fuel was purchased in the state. (They lost)

    6. Michael Kennedy Says:

      Have you been to a Borders store lately? I have about $500 in Borders gift cards that I had better use soon. On the other hand, I bought a coffee maker and a watch from Amazon and had bad experiences with both.

      The coffee maker was a combination grind (with a burr instead of the blade grinder) and coffee maker but was so tall, it didn’t fit under the cabinets. It ended up in a second home and died about 6 months later. Returns of large items are not easy.

      Second, I bought one of those “discounted” watches that Instapundit wrote about as a gift for my son. I made the mistake of setting it aside until Christmas, then found it was a cheap Chinese copy that did not work. I contacted Amazon and was referred to “World of Watches” which then told me they would give me return information. It has never arrived. A review I submitted to Amazon (I’m a “Vine” reviewer) with the story was never posted. Maybe the title offended them. It was “Don’t buy this watch.” I actually took it to a good watchmaker to see what was the situation since they told me the 30 days I had to return it had expired. He said the winding stem had been cut too short. It would have been easy to fix by the manufacturer but they don’t seem to be interested and I have been unable to warn off other potential buyers.

      Caveat Emptor. Amazon is great for books and I probably spend a couple thousand dollars a year there. My wife bought me a Kindle in hopes I would buy fewer books. If you read the Kindle reviews, even that seems to show that Amazon is not necessarily a gentle giant. I’ve had good luck with warranty service from Best Buy with a big screen TV and will stay with them.

    7. Carl from Chicago Says:

      Hmmm… no one apparently clicked on the “world’s best search engine?” I suggest you try it.

      I have bought a lot of stuff online and Amazon has been really good. Could just be my experience.

      Living in the city, it is hard to drag a big screen TV home in the first place

    8. Jonathan Says:

      Hmmm… no one apparently clicked on the “world’s best search engine?” I suggest you try it.

      I concur that it is indeed an excellent search engine.

    9. Tatyana Says:

      Not so excellent: they only have one measly corset in my size.

    10. Dan from Madison Says:

      Tatyana, that comment started my morning off right.

    11. Tatyana Says:

      Dan: I thought so.

    12. Tatyana Says:

      Dan: I thought it will.