Californians spend freely on Amazon.com before sales tax deadline
Chris Cheng doesn’t need 40 hand warmers right now, but the longtime Amazon.com customer is loading up on them anyway.
With the Internet retail giant set to begin collecting sales taxes on California purchases Sept. 15, the San Francisco resident is among many tech-savvy consumers trying to cram in some last-minute tax-free shopping.
Depending on where they live, Californians pay 7.25% to 9.75% in sales taxes, so the savings are substantial — especially on big-ticket items such as electronics. But bargain hunters are also stocking up on inexpensive goods such as food, DVDs and carpet cleaner.
“I’ve ordered nine things in the last two weeks,” said Cheng, 32, whose purchases include a hands-free roaming camera for $199.99, five pounds of protein powder for $53.99 and exercise resistance bands for $26.99. “Any time you can save money, that’s a good thing.”
He’s not the only one looking for a deal.
Abdel Ibrahim, a tech entrepreneur and trader from San Diego, said he would buy a MacBook Air and MacBook Pro with retina display on Amazon before the cutoff, a move that will save him about $270 in sales taxes.
“It makes a huge difference,” the 30-year-old said. “If there’s anything else I can think of where I can fork up some money and save a couple hundred bucks, I probably will.”
Amazon won’t say whether sales to California customers have spiked in recent weeks. But judging from comments on social media sites and reportedly increased buying activity in other states before similar sales tax laws went into effect, many shoppers see these final days as an excuse to shop freely.
That could grow in the coming days as word spreads about the looming deadline, said Kerry Rice, an analyst at Needham & Co.
“I assume there will be a network effect that will drive more people to go online,” he said. “It’s reasonable to assume that as we head in, you’ll see a pickup in volume.”
The buying binge comes after a drawn-out battle last year between the Internet giant and state lawmakers that ended with Amazon agreeing to start collecting sales taxes on purchases a year from then.
Amazon is not the only Internet merchant affected by the new law. But as the nation’s largest online retailer, it has been the main target. More than 200 other out-of-state companies with major business in California may also be on the hook to collect sales taxes on items shipped to the state.
The tax revenue from these online sales is being lauded as a win for the debt-ridden state, which estimates it will see an additional $317 million annually as a result; more than $83 million of that is expected to come from Amazon alone.
It’s also a victory for mom-and-pop shops and big bricks-and-mortar retailers, including Wal-Mart Stores Inc. and Target Corp., which have complained for years about what they called Amazon’s unfair sales tax advantage. Merchants including Best Buy Co. were especially hurt when shoppers would “showroom,” or check out products at the company’s stores, but ultimately buy them online to avoid paying sales taxes. Now they will be on an even playing field, they say.
“Every retailer has the ability to match a price, but no brick-and-mortar retailer can say to a consumer, ‘Don’t worry, I won’t collect that sales tax,’” said Jason Brewer, a spokesman at the Retail Industry Leaders Assn. “That 6 to 10% price advantage is a huge problem and distorts the free market.”
That’s a tough argument for customers who had grown accustomed to a built-in discount.
“Amazon to begin charging CA sales tax on 9/15: Shop now,” Cynthia Price, a paralegal from San Francisco, said on Twitter. “Buy your [MacBook Pros] and flat screens quick!” wrote Michael Christoff, 29, founder of a mobile start-up company. “Remember Amazon will start charging sales tax on Sept. 15th. Best get your orders in before then,” tweeted Tony Chung, an information technology support specialist from San Leandro, Calif., who planned to buy $1,000 worth of computer parts in the next two weeks.
Californians have been required to pay taxes on Internet purchases all along. If an online merchant doesn’t collect the tax, California law requires consumers to keep track of what they buy and remit a use tax directly to the state. But almost no one does, and officials have been lax on enforcement.
Once Amazon starts automatically tacking on the sales tax at the point of sale, it will be tougher for consumers to evade the rule, said Jerome Horton, chairman of the state Board of Equalization. He called the new law “a giant step forward” and said sales tax revenue would be used to support crucial public services.
Amazon spokesman Scott Stanzel said the company, which already collects sales taxes in seven states, expected a smooth transition. Shoppers who buy something on the site Sept. 15 will simply see sales tax added on the checkout page, similar to what happens when they shop on sites such as Macys.com or Target.com.
He added that the e-commerce giant, with sales of $48.1 billion last year, wasn’t worried about losing business after the deadline.
“We offer customers the best prices with or without sales tax,” he said. “We collect sales tax, or its equivalent, in more than half of the areas where we do business, and we’re pleased to say we’re thriving in those geographies.”
It remains to be seen how shoppers will respond once the sales tax law kicks in. Many said Amazon’s convenience still couldn’t be beat. Others said they’d be more inclined to shop at local stores and get their purchases right away.
But there are some upsides.
The Seattle company, which for years avoided having a physical presence in California so it wouldn’t have to collect sales taxes, is now opening two enormous fulfillment centers in the state. The warehouses, in San Bernardino and Patterson, are expected to bring more than 1,000 new jobs to the state. Once they’re up and running, the proximity of the centers could speed up shipping times for shoppers — same-day shipping, however, isn’t in the plans yet.
Even without the sales tax advantage, “Amazon’s prices are still meaningfully lower than what you’d pay at retail,” said Mark Miller, an analyst at William Blair & Co. The firm conducts regular price checks on identical items at Amazon and its major competitors and found that in states where Amazon collects sales taxes, consumers pay roughly 5% less on the e-commerce site than at traditional stores; that difference is 12% on average in other states. And the price gap between Amazon and bricks-and-mortar merchants is increasing as Amazon grows even larger in scale, he said.
Self-professed “Amazon junkie” Lauren Anderson, 27, isn’t taking any chances. The Burbank resident has been splurging on Amazon purchases in recent weeks, buying a coffee maker, video games, cable connectors and a phone charger. She might also buy a laptop.
“When I first read about the fact that Amazon was going to have to start collecting taxes in September, I seriously thought I was having a bad dream,” she said. “My mailman probably thinks I’ve lost my mind, all these packages coming and coming.”