Do Customers Shop Online To Avoid Sales Tax?

Proponents of the Marketplace Fairness Act (MFA) have repeatedly claimed that U.S. customers are shopping online en masse primarily to avoid paying sales taxes. In fact this claim is the lynchpin of their "fairness" argument (the argument that local retailers are at a pricing disadvantage vs. remote sellers and therefore the Marketplace Fairness Act is necessary for fairness). If customers are not going online to avoid sales taxes in droves then the fairness argument falls apart. Shopper Approved recently ran an expansive study on why Why People Shop Online. They implemented a post-transaction survey on over 200 online stores and they asked over 25,000 customers: "What key factor influenced you to buy online instead of locally?". They gave respondents six, randomly sorted options (Larger selection, Better pricing, More convenient, Time savings, Easy to compare, No sales tax and Other).

So what drives people to shop online? Is it, as MFA proponents argue, to avoid paying sales tax? In a word. No.

"No Sales Tax" was the least selected option at 3.3%. It ranked below every other option and Shopper Approved concluded that "...this factor does not appear to be a primary driver of the decision to purchase online." They go on to explore what that number means in the context of total retail sales. As Shopper Approved points out, online retail accounts for just 6% of all retail sales, and sales taxes are not collected on about 1.02% of all retail sales. This means that 3 retail orders out of every 10,000 are made online (instead of in a local store) primarily to avoid paying sales taxes. This is a staggeringly low number and has significant implications in the sales tax debate because it means that online retailers have virtually zero pricing advantage due to the fact that they don't collect sales taxes.

We recommend reading the entire blog post which goes into more detail. There is some great information and suggestions for what store owners can do better to encourage customers to shop online at their stores.

So then, why are Big Box retailers so eager to pass the dubiously title Marketplace Fairness Act? As we have pointed out repeatedly, Big Retailers like Walmart, Amazon, and BestBuy want to bury nimble small businesses under huge compliance burdens and audits and put them out of business. They've been putting small local mom and pops out of business for decades and this is a key opportunity to bury online mom and pops too. They know that the costs of compliance alone will bankrupt many of us.

It's also important to note that shipping costs almost always exceed the cost of tax collected, so there is no inherent pricing advantage for online retailers. In fact, having physical presence is a decisive advantage for local businesses, especially large Big Box retailers who get tax abatements and special treatment. Those who expand into multiple states (like Walmart and BestBuy) to get the advantages of physical presence in multiple states assume the burden of tax collection in the venue where they open a business. When businesses have physical presence in a jurisdiction, they receive all the benefits of that jurisdiction that remote sellers do not get.

The playing field is already skewed to benefit Big Box retailers and the MFA will make this even more unfair for small businesses.