Tom Webb at the Pioneer Press reported that the Minnesota is reaching the end of an era when it comes to sales tax collection for online purchases. It was a good run, but it’s coming to an end July 1st, when the “Save Best Buy and Target from Amazon” bill becomes law.
I decided to look at my own exposure under this change to get a feel for how many meals my daughter is going to need to miss so I can maintain my Amazon habit. The state tax rate is 6.875%. How does that translate?
I looked up my recent purchases on Amazon. It turns out that I’ve spent $5,068 in the past 6 months on 180 transactions. When Carly says that it feels like an Amazon box arrives at our house every day, she’s actually understating the situation.
$5,068 * 6.875% = $348.42
Will I change my buying behavior over less than $1 per day? Am I going to start driving to Target to buy what I buy on Amazon today? No. Here’s why:
1. My actually tax exposure is far lower than that. Why? Because a lot of the stuff I buy on Amazon is tax exempt, such as baby diapers, baby food, baby clothes, adult food, adult clothes, and books.
2. Price competitiveness. The last hardware purchase I made on Amazon was for a kitchen faucet. Home Depot sells it for $349 with free shipping. Amazon sells the same faucet for $61.78 cheaper and ships it twice as fast for free. And, which site do you think provided better customer reviews to decide whether it was a faucet worth purchasing?
Best Buy doesn’t carry my favorite earbuds in their stores, but they do offer them online for 30% more than Amazon. Best buy takes 6-9 days to ship them (with no option to ship them faster) while Amazon ships in 2 days for free.
Richfield-based Best Buy has been particularly hurt by competition from online rivals, and this has led to layoffs and store closings. On Tuesday, CEO Hubert Joly noted that 50 percent of the U.S. population will soon live in states where Amazon’s no-sales-tax advantage will disappear.
This is a real-world example of sales tax not being the problem. Best Buy doesn’t carry what I’d like to buy, so they kick me out to a 3rd party site to buy what I want for 30% more than Amazon charges. I suppose this allows Best Buy to maintain the margins they’re aiming for while losing the sale.
Seriously, check this out:
Clik here to view.
Clik here to view.
Best Buy and Amazon are both selling the same product from Accessory Genie. Amazon charges $6 less and delivers in two days. Best Buy charges $6 more and delivers in 6-9 days. Even with sales tax, Amazon crushes Best Buy by $4.62 and 4-7 days on this product, and people can throw some Mac & Cheese into their shopping cart before checking out. Best Buy CEO Hubert Joly’s sale tax comments may temper a few frustrated shareholders but haven’t swayed this informed consumer.
3. Long tail. It turns out that I buy quite a few things on Amazon that aren’t stocked by big parking lot stores. For example, a 1lb bag of chamomile tea from Croatia.
Maybe I’m an outlier, but based on my purchase behavior I don’t think this new sales tax does much to level the playing field against a company that sells a ton of tax exempt products, has lower prices, faster free shipping, and a far larger inventory than our local big parking lot stores.
Perhaps that’s why Target’s year over year sales grew by 1% while Amazon’s grew by 22%?
As I see it, this may increase my costs by around $10/month, but the benefits of shopping Amazon over big parking lot stores are still obvious to me.
If Target or Best buy borrowed the Byerly’s online model, that might interest me. Byerly’s has online ordering with online payment and drive-up pickup. As in, you never have to enter the store. Just drive up and they’ll load your car up with what you purchased. That’s convenient. In fact, it’s more convenient than postal packaging. Moms with a carload of kids would love this. Under the status quo, Amazon will continue to chip away at Target and Best Buy with or without sales taxes.
This post was written by Ed Kohler and originally published on The Deets. Follow Ed on Twitter: @edkohler
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