Internet Taxes Would Cause Drop In E-Commerce Sales

A new study from BizRate.com shows that nearly 60 percent of online shoppers would make fewer purchases if sales taxes were implemented on the Internet.

BizRate.com’s “Flash Survey” includes comments from nearly 17,000 online buyers, surveyed at the online point-of-sale through a partnership between BizRate.com and the Association for Interactive Media (AIM).

The groups plan to discuss their survey, plus the results of two previous surveys on Internet taxation, at the San Francisco, California meeting of the Advisory Commission for Electronic Commerce.

Commerce Barrier for Many

The addition of sales taxes to the heretofore tax-free Internet would place an overwhelming burden on several different categories of the online market, Bizrate.com said.

It would significantly hurt foreign merchants, the company argues, because 30 percent of consumers say they would never buy from them if they had to pay tariffs on those purchases. More than 50 percent said they would cut back on purchases from foreign merchants.

Domestic sales taxes, however, would not have the same extreme effect. Only three percent of respondents said they would never buy online if they had to pay a domestic sales tax on all online purchases, Bizrate.com said.

In addition, sales taxes would push away the few low-income shoppers that have begun to shop online. Buyers with incomes of less than $20,000 (US$) are less likely to make online purchases if a sales tax is imposed, Bizrate.com said.

In the wake of news earlier this year that low income and urban families are already trailing wealthier suburban families in access to the Internet, putting up an additional barrier such as a sales tax would counter the U.S. government’s initiatives to close that Internet gap.

“The BizRate.com data clearly shows that Internet consumers are tax conscious and want the choice whether or not to pay the tax at the point of purchase. If the Internet is to maintain its increasing contribution to the state and federal economies, legislators must listen to consumer response,” AIM executive director Ben Isaacson said.

Cutbacks Across All Demographics

Young buyers, men, and experienced online shoppers all said they would reduce their online purchases if faced with a sales tax. 63 percent of consumers below the age of 35 would cut back their purchases, compared to 57 percent of older shoppers.

Men are 12 percent more likely than women to cut back their online shopping, and 60 percent of experienced buyers, compared to 50 percent of first-time buyers, said they would shop less.

Only 13 percent of Internet shoppers surveyed said they shop online expressly to avoid Internet taxes. Computer shoppers, who rank among the biggest spenders on the Internet, are the least likely to keep spending as much if a sales tax is imposed.

Gift givers, on the other hand, are unlikely to cut back their shopping significantly, the study showed.