How State Sales Tax Collections Could Hurt Online Shopping (BBY, AMZN)

Online shopping could soon become more expensive for select American consumers if Best Buy BBY has its way. The retailer, among others, has openly expressed its resentment at online companies like Amazon AMZN for not collecting sales tax in states where it does not have a corporate presence. Further, according to a Reuters report, "Lawmakers in states -- many facing huge budget deficits -- have also argued that Amazon has a duty to collect tax because its "affiliates," or independent Web operators which are paid a fee when they drive traffic to Amazon that results in a sale, operate in the state." Under the scrutiny, Amazon has chosen to pull its affiliate program in states where online sales tax collection is being enforced. Illinois was the first state to have its laws changed, and Amazon announced plans to cancel its current program there. Texas and California are also considering similar bills. "We will continue to drop states who pass those affiliate laws, from the affiliate program," Amazon CEO Jeff Bezos said Wednesday at the ShopSmart Shopping Summit in New York. "The sales tax collection is very complicated," Bezos said. "The right place to fix this is with federal legislation." What does this mean for online shopping in the mean time? Most certainly, online retailers will feel the pinch in several states, but aren't likely to experience material declines in sales revenues. Unless a consumer holds residency in an affected state, they will see no change. Conversely, if more states choose to enforce state sales tax laws to offset financial burdens, then bigger retailers would likely be subject to more strain. Without a doubt, the absence of sales tax is a big attraction to online shoppers - and companies are reluctant to announce that consumers are supposed to self-declare their sales tax obligations to the state in tax returns. Clearly this could hurt both online shoppers and online retailers. Consumers would be forced to pay the original purchase price, sales tax and possibly shipping charges. After that new math is factored in, some buyers would surely withdraw their business, effectively hitting the companies they shop at. This is a development that retailers will pay close attention to. Stock holders across the corporate spectrum and online buyers across all 50 states could indeed be in for a new market environment.