Customers Abandoned Amazon in Droves When They Had to Pay Sales Tax

Adam Ozimek posted an item yesterday making the case that Donald Trump is wrong about something. Shocking, I know. But in the process he points to an interesting paper from a couple of years ago about the effect of sales taxes on Amazon purchases. A trio of researchers compared purchases from Amazon in five states both before and after Amazon started collecting sales taxes there:

They found that brick and mortar retailers saw a 2% increase in sales, and a decline of 9.5% for Amazon. This is hardly enough to save brick and mortar stores or stop Amazon.

True enough. The move to online retail is bigger than Amazon, and it’s unlikely that anything would have stopped it or even slowed it down substantially. Still, here’s the data from the paper:

These are…big effects. For costly items, the paper concluded that Californians reduced their Amazon purchases by a third. Even in low-tax Virginia, households reduced their Amazon habit by 11 percent. For all items, households reduced their Amazon purchases by 9.5 percent overall, but by 15 percent in California and 11 percent in Texas.

This coincided with an increase of “only” 2 percent at brick-and-mortar stores, but that’s to be expected. As big as Amazon is, it’s still a small fraction of the size of the entire retail market. A decline of 9.5 percent in Amazon sales spread among all brick-and-mortar retailers adds up to a small number.

Obviously this hasn’t put Amazon out of business. But I think that misses the point. I wonder what effect it would have had on Amazon’s growth ten or fifteen years ago? If sales tax has this much effect even now, when Amazon is practically a habit for millions of consumers, what effect would it have had back when Amazon was still relatively new in the non-book space? Bigger, I assume. And what effect would that have had on Amazon’s growth? Substantial, I think.

One study doesn’t prove anything, but this one sure suggests that an awful lot of Amazon’s initial stratrospheric growth was due to Quill v. North Dakota. Maybe Jeff Bezos should send a thank you note to the Supreme Court.