Online Sales Tax and the Future of Delivery

Matt Yglesias writes that "online ordering and ubiquitous delivery are the real future of urban retail." For me, the future is now. I order my groceries online from FreshDirect. I order from restaurants through SeamlessWeb more often than I care to admit. I'm an Amazon Prime subscriber, and what most Americans buy at the mall and in Big Box stores, I order on the Internet with free 2-day shipping.

My behavior isn't entirely new. New York City has long had a delivery culture, and restaurant delivery here isn't limited to Chinese food and pizza. Even my local French bistro delivers, so I can get escargots in my apartment without putting on pants. With the advent of web ordering, I don't even need to talk to anybody to get food through my door.

I'm a pretty heavy Amazon user but not one of the heaviest. My friend Nicole Cliffe does so much of her shopping through Amazon that in 2010 she got a handwritten note from headquarters, thanking her for her patronage. Last year, when Mother Jones' Mac McClelland went undercover as a worker in a distribution center for online retailers, she was left to wonder who buys paper towels online. The answer is that Nicole does.

I like living in the future -- shopping in a brick-and-mortar store always takes longer than you expect, and in Manhattan, the crowds can feel like Christmas all year. But while Yglesias celebrates this coming change, it also has its drawbacks. As we gradually lose brick-and-mortar shops, we will lose some of their advantages over online retailers.

The main one is that some products, especially clothes, are best bought where you can examine the product in person. Fine, you'll say, so brick-and-mortar clothing stores will survive even as other goods shift toward delivery. But a problem arises when a product can be bought in a store and on the Internet. I can visit a store when I want to try out a product and then buy from an online retailer whose prices are lower because it doesn't have to maintain a showroom.

On their smartphone applications, FreshDirect and Amazon even have features that can allow me to scan the barcode of an item and see whether they can beat the price. As stores turn into showrooms, they will increasingly go uncompensated for the services they're providing, and some will close even though they remain useful. Eventually, stores everywhere might be as crowded as the ones in New York City.

Currently, physical stores at least have the advantage of immediate gratification: If I order the product I tried out in the brick-and-mortar store online, I'll have to wait a couple of days to get it. As Amazon improves delivery times, that advantage will fade, too.

There's no obvious way to fix this problem. Zappos uses free shipping both ways to encourage shoppers to order things they're not sure will fit or look good. Essentially, you get your own showroom at home, but it's not very efficient, and the cost of all that shipping gets built into product prices. Maybe brick-and-mortar clothing stores will eventually start charging a small fee for every garment you try on.

We can slow the transition toward delivery by removing an advantage that online retailers have for no good reason: Many online sales of taxable goods go untaxed. Imposing taxes on online sales isn't simple -- there are over 8,000 different sales tax jurisdictions in the United States -- but a workable system that gets states their revenue without unduly burdening retailers is possible. Online retail has enough inherent advantages; it doesn't need more created by a flaw in tax policy.

(Josh Barro is lead writer for the Ticker. E-mail him and follow him on Twitter.)

Read more breaking commentary from Josh Barro and other Bloomberg View columnists and editors at the Ticker.

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