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What AB155 Means to eCommerce in California

Published June 08, 2011 Share

As many of you know, the California Assembly passed AB155 last week. If the bill becomes law, many out-of-state retailers will have to charge sales tax on any online purchases made in California. There is a lot of controversy surrounding the bill, but around the Shopatron office the mood is actually optimistic.

We partner with the retailers who have been harmed by the status quo. They are at a competitive disadvantage because they are required to charge sales tax whereas competing, out-of-state online retailers aren’t. We believe AB155 will level the playing field, allowing these retailers to compete fairly based on important components of the product offering like actual product price, convenience and customer service.

Before the eCommerce boom, the inequity seemed inconsequential, as traditional, out-of-state catalogs did not take any substantial amount of business from retail shops. But the booming online market is due for a minor correction to keep it on track for long-term growth. Not because struggling states need to recover lost tax income (although they do), but because subsidized markets don’t operate efficiently over time—and giving a tax advantage to one industry group over another is effectively a subsidy.

We at Shopatron have benefited from the subsidy like many of our online counterparts. While we promote local fulfillment, there is always a small percentage of our orders that come from out of state. These orders have been tax-free, making purchasing from our clients more attractive to customers. But over the long term, we believe that this small price advantage is not sustainable. Online customers will ultimately demand excellent shopping experiences online, which is where we have directed our strategy. When the dust settles, and fair tax laws have been passed, others will go this same direction. Luckily, we have a head start…

Research shows, a good majority of shoppers say they prefer to buy at a store, but the allure of paying 6-10% less (tax rates vary from state to state), has driven many cost-conscious buyers online. Ultimately shoppers will benefit more if all retailers, whether online or brick-and-mortar, have to compete fairly based on old-school business values like product, price, place and promotion. That is where true loyalty is born.

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