New study reveals explosive growth of third-party sales, sales tax avoidance
A new report from the American Booksellers Association (ABA) and Civic Economics reveals the continuing — and increasing — loss of jobs and essential state and municipal revenue as a result of the growing retail dominance of Amazon.com. The report documents both Amazon’s sales and, for the first time, the explosive growth of sales through its third-party Marketplace from 2014 to 2016. And the report makes clear that Amazon’s sales tax avoidance strategy has continued despite well-publicized agreements with American states.
Prime Numbers: Amazon and American Communities, released by ABA on April 4, 2018, paints a comprehensive picture of Amazon’s impact at the state and national level.
Marketplace sales growth and sales tax avoidance
Prior to the release of Amazon’s Annual Report for 2016, analysts were left to speculate as to the size and trajectory of Marketplace sales. Also prior to that report, the company made a strong public relations push in promising to collect and remit sales taxes to states and localities nationwide. While governors and state legislators believed that they had won a significant victory on behalf of communities and tax-paying Main Street businesses, the truth was that more than half of Amazon’s total retail sales volume was beyond these tax agreements.
According to Civic Economics, Marketplace sales grew from 46% of Amazon’s retail sales in the US in 2014 to 56% in 2016, more than doubling in volume over the same period. Amazon’s direct sales grew at a much slower pace, which resulted in a significant shift toward third-party sellers, which are left to their own discretion to decide whether and where to remit sales taxes.
Moreover, a recent report from the federal General Accounting Office estimates that such third-party online sellers “likely collect and remit between 14% and 33% of potential sales taxes to state and local authorities.” Based on that range, Prime Numbers estimates the total uncollected state and local sales taxes in 2016 at as much as $5 billion, resulting in shortfalls that leave states, cities, and towns scrambling to fund schools, first responders, infrastructure, and other services.
Retail movement from commercial to industrial districts
The growth of online sales in general and Amazon in particular has had a visible impact in American communities, exhibited by the much-discussed “retail apocalypse” as retail activity increasingly moves from commercial districts to industrial parks.
Prime Numbers estimates that, in 2016 alone, Amazon’s retail sales displaced 44,000 storefronts employing 637,000 retail workers. Even considering Amazon’s massive distribution network, the net result is a loss of more than 500,000 jobs nationwide.
Prime Numbers provides a detailed accounting of these impacts at the state level as well. While retail displacement is predictable simply as a function of each state’s retail activity, tax and employment impacts are highly variable.
The study estimates that only one American state, Kentucky, gains enough in Amazon distribution jobs to offset the loss of retail store employment. Every other state and the District of Columbia is a net loser of jobs despite Amazon’s well-publicized and frequently subsidized job announcements.
State and local sales tax impacts are naturally correlated with each state’s dependence on such taxes, as well as the extent to which Amazon collected sales taxes in a given year. The continuing sales tax gap may come as a surprise to politicians who thought they had solved the problem when Amazon agreed to begin collecting sales taxes in all states in 2017. The secret back door to renewed tax avoidance through third-party sales means many states will be surprised that little has changed.
Full study and state-by-state results available online
ABA and Civic Economics have made the full Prime Numbers report available online at www.CivicEconomics.com. A summary graphic is also available for each state and the District of Columbia, allowing readers and policymakers to see for themselves how their community is impacted.
Learn more about this study and the American Bookselling Association from Bookselling This Week at www.bookweb.org/news.