Matthew C Klein, Columnist

Will Sales Taxes Doom Amazon?

New research suggests the online retailer was able to grab so much market share because its customers didn't have to pay sales tax.

April 21, 2014 at 6:14 PM UTC

By Matthew C Klein

Matthew C. Klein writes for Bloomberg View about the economy and financial markets. He previously wrote for the Economist magazine and its economics blog, Free Exchange. Before that, Klein was a research associate at the Council on Foreign Relations, where he spent more than two years studying the history of the Federal Reserve and the intellectual history of monetary economics for an upcoming book by Sebastian Mallaby. He also worked at Bridgewater Associates, where he studied the economies of Central and Eastern Europe and advised institutional investors on asset-liability management. Klein has a bachelor's degree in history from Yale University. Originally from Chicago, he lives in New York.

Tax this. Photographer: David Paul Morris/Bloomberg — Tax this. Photographer: David Paul Morris/Bloomberg

Provide news feedback or report an error

Site feedback:

Take our Survey

This article is for subscribers only.

There are lots of reasons to shop at Amazon.com Inc., though one stands out: Many customers don't have to pay state sales taxes, saving them as much as 10 percent on everything from toilet paper to televisions. New research confirms that this taxpayer subsidy is worth a lot, although the evidence also suggests that changing tax rules may not help brick-and-mortar stores compete against online retailers.

Even before the age of Amazon, some shoppers avoided sales taxes by crossing borders. It only takes about 40 minutes to drive from Boston, where sales taxes are 6.25 percent, to New Hampshire, which has no sales tax, so it isn't surprising that many consumers do so. The drive from Seattle to Oregon is a bit longer but the sales tax savings are even bigger at 9.5 percent. Scholars have found that consumers even cross international borders when the tax difference is big enough. (Here is a paper about Singaporeans shopping in Malaysia and here is one about Swedes buying alcohol in Denmark.)