Wednesday, October 26, 2011

Will An Internet Sales Tax Change The Consumers Use of E-Commerce?

A research question popped into my head as I watched Amazon report lower earnings and see its stock price drop 10%. Sales were up but profits dropped due to higher spending on production, technology, and acquisition. So the good news is that consumers enjoy shopping online on Amazon and other websites. And it made me ask, would consumer spending change should an internet sales tax ever be established. Certainly some states already charge a sales tax and California is pushing one, but for the most part, we save money by not paying tax with our purchase. In fact, when I purchase online, I also see if shipping is free as well, another factor in deciding whether it might be cheaper to simply drive and buy at the store.

What economic impact on internet spending would result if an internet sales tax was established? Obviously we would continue to make digital purchases online, music, videos, and of course, books. But would we continue to buy material goods through the web if the cost (with tax and shipping) actually exceeded what it cost from a store? Would Amazon and other web retailers' profits suffer even more?

Today's politicians are discussing new tax models and an internet sales tax could be one of those pieces of their puzzle. And while an internet sales tax might bring in additional revenue, it might also act as another barrier to our economic recovery. An e-commerce sales tax may sound like an easy solution but it might also come with many consequences.

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