Saturday, May 19, 2018
Business

Thurston: Amazon sales could drop in Florida when sales tax takes effect Thursday

I bought a tree swing hanging kit through Amazon on Monday and didn't pay a penny in sales tax.

Get ready for that to end.

On Thursday, the online retailer will start collecting sales tax on purchases made in Florida. That means the cost of a lot of products sold on Amazon will go up 7 percent for most Tampa Bay shoppers.

The change comes because Amazon is opening fulfillment centers in Hillsborough and Polk counties for distributing goods. That's enough to create a physical presence for Amazon in Florida, which under state law requires the retailer to collect sales tax.

The tax revenue is expected to generate about $75 million a year for the state and help brick-and-mortar stores better compete against the world's largest retailer, which did nearly $20 billion in sales last quarter. For years, small business owners have complained that Amazon and other online retailers have had a competitive advantage because their customers don't pay sales tax.

It will be interesting to see how this plays out. Will deal seekers simply find other tax-free alternatives on the Web? Will the additional 7 percent prompt would-be online shoppers to instead visit local stores?

A report out this month sheds some light. Researchers at Ohio State University found that Amazon's sales dropped in places where the sales tax was introduced. Households reduced their spending on Amazon by about 10 percent in states with the tax, compared with households in states without the tax. For expensive purchases — where sales tax can really push up the cost — sales fell by 24 percent.

"There is no ambiguity," Brian Baugh, one of the report's authors, told Bloomberg News. "It has been their competitive advantage."

But the report, titled "The Amazon Tax," also found that brick-and-mortar stores didn't see huge gains after Amazon started collecting the tax. Just a modest 2 percent boost in sales.

Not surprisingly, merchants that had the biggest gains were third-party sellers that use Amazon Marketplace, mostly for big ticket items. Those retailers pay Amazon a fee to post their products on Amazon but aren't required to collect taxes on items bought from out-of-state customers.

I suspect that when the sales tax goes into effect in Florida, shoppers will simply look for items sold by third-party retailers operating in another state, which account for a lot of Amazon's sales. I know I will. Only items directly sold by Amazon or a retailer that uses "Fulfillment by Amazon'' for shipping its goods will be taxed. Purchases from out-of-state retailers won't.

Florida will become the 21st state to collect sales tax. Amazon has aggressively fought to avoid the tax but, faced with increased pressure from state government and retailers, has been opening fulfillment centers as a way to satisfy state coffers but also speed up delivery times.

Both Hillsborough and Polk counties offered Amazon millions in tax incentives over the next several years in exchange for the retailer creating hundreds of high-paying local jobs. Hillsborough's fulfillment center in Ruskin is expected to start processing orders in time for the holiday shopping season.

Susan Thurston can be reached at [email protected] or (813) 225-3110.

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