Amazon evens retail tax playing field

Brick and mortar stores are catching up with their biggest competitor – online retailers – with Amazon’s recent move to charge sales taxes on online purchases in Missouri. The tax began on Feb. 1, and collections go directly into state coffers.

Federal law doesn’t require online businesses to charge sales taxes unless they have a fixed asset, such as a distribution center, in that state. As of Feb. 1, Amazon charged sales taxes in 39 states.

“There is plenty of speculation why Amazon is starting to do this,” said Marcus Crigler, a growth and profitability strategist at Duckett Ladd LLP. “Many people believe that they are preparing to put an asset, a distribution center, in state.”

Amazon already has made plans to open a distribution center in Kansas City, Kansas, and two distribution centers in Edwardsville, Illinois, according to published reports.

Missouri’s sales tax law has a couple other specifications other than having an asset in the state: if a vendor has a click-through agreement with a business located in Missouri or if the out-of-state vendor’s gross receipts from sales to Missouri customers exceed $10,000, then the vendor must collect sales taxes.

Currently, Missouri’s sales tax is at 4.225 percent for all purchases, now including Amazon. But if consumers don’t have to pay that extra amount, they won’t.

“You get roughly a 5 percent discount for shopping on Amazon right off the bat,” Crigler said. “It’s been tough on some retailers to compete and many of them have had to drop their price.”

Amazon has had the advantage of convenience – and a quick delivery – Crigler said, but storefronts maintain the advantage of creating a customer experience.

For the most part, now the pricing playing field has been evened. Amazon no longer has a leg up.

Citing a study by Ohio State University reviewing the impact of the Amazon tax in other states, Crigler predicts sales will increase locally. The study found, for instance, Best Buy sales increased by 7 percent the year the tax began.

“I believe that we’ll see a difference in some of our small businesses in the state of Missouri, and they’ll see an uptick in the sales that they have over the next several years due to this change,” Crigler said.

Brandon Welch, president and chief of strategy at marketing firm Frank and Maven, specializes in making sure retailers are honing in on their competitive advantage so that when a consumer has the choice of an experience or convenience, they’ll go with the former. He recommends brick-and-mortar stores make a 20- to 30-point bulleted list of customer experiences that says, “If we had the most ecstatic customer in the world this is what that experience would have to look like.” It should range, he said, from what the customer hears and smells when they walk in the door to what they see, from the look the employees have on their faces to how the business deals with product repairs and warranties.

“It costs just as much to be average as it does to be excellent. It’s just a matter of deciding to do so,” Welch said.

Welch pointed to the music industry as being greatly impacted by online retail.

At Springfield Music Inc., a client of Welch’s, Vice President Donovan Bankhead said the lack of online sales taxes caused the store to drop prices 4-8 percent, impacting its margins and its bottom line. He hopes with the new Amazon tax, online retailers in the music industry will follow suit.

Bankhead also focuses largely on the customer experience at Springfield Music.

“My staff always hears me talk about the plight of a shopper,” Bankhead said. “We have to create a shopping environment and an experience that is worthy of someone putting their pants on and driving across town.”