Will Sales Tax Hurt Internet Sales?

Very soon, Internet retail companies will no longer be exempt from collecting state sales tax. Upstream Commerce did a nice job in this article describing the coming change and several ramifications of the change:

1. Tax tracking systems will be expensive and complicated.
2. The exemption guidelines could be altered once passed.
3. Internet business development will be dampened.
4. Consumers may turn off to online shopping.
5. Competitive pricing strategies may come into play.

Here are my pricing based perspectives on these 5 points.

1. Unfortunately this will be true. Amazon will become an even bigger behemoth because it will be very difficult for smaller companies to comply. It will be easier to become an Amazon partner.

2. It’s fair to say that taxes, fees and government spending will always go up.

3. Although probably true to some extent, this won’t be a big effect. See the answer to #4 for more details.

4. This is probably the issue most worried about, and least likely to have a huge impact. The question is why do people shop online? Certainly some people buy online for better prices, others shop online for convenience, still others for the huge selection of products they can’t find at local stores. My gut says that number of people buying online just for better prices is relatively small. Combine that with the many studies that show people rarely use fees (sales taxes) in their decision making and it seems unlikely adding state sales tax will have much of an impact.

5. I’d like to believe that competitive pricing strategies are always in play, but we know better. This shock to Internet prices may cause Internet retailers to focus more on pricing, prompting new and hopefully better pricing strategies and implementations.

Yes, taxing Internet sales will impact the markets, but probably not the way most people think. The Internet is part of our lives. A small increase in fees will not significantly change our purchasing behaviors.

How does this effect you and your business? Probably not much. My suggestion, don’t worry about it. Focus on building and capturing value. You will get a much better return on your time.