The U.S. Supreme Court changed course on taxing online sales this summer. Now, the Kenai Peninsula Borough is working towards taxing major online retailers, namely Amazon. While taxing those sales may help cash-strapped boroughs like the Kenai Peninsula, local retailers are also hoping the change will benefit their bottom line.
Back in June, the Supreme Court overturned a 1992 decision preventing states and municipalities from taxing online retailers without a presence in their jurisdiction. Now states and communities that are not home to warehouses, stores or offices belonging to major online retailers can tax their sales.
The Kenai Peninsula Borough is working towards taxing most online purchases, and the Kenai Peninsula Borough Assembly is likely to take up the issue this fall. Its aim is to target consumers like Homer resident Danielle Meyers.
“I was born and raised in Alaska. So, I’ve resorted to online shopping most of my life, and it has varied, but now as a mother, most of my online shopping is through Amazon,” Meyers said as her one-year-son sat on her lap at the kitchen table.
Meyers and her husband mostly buy household items like cleaning supplies, diapers and wipes through Amazon’s subscribe & save program.
“I even get my quinoa and my rice through that program,” Meyers added.
Meyers said she would be happy to pay into the borough’s coffers through her online purchases, but local brick-and-mortar retailers hope taxing online sales will incentivize consumers like her to shop locally instead.
“I’m not sure how sensitive people are to the sales tax in the Homer area, especially with a $500 cap. The maximum impact on any transaction is $37.50,” Patrick Mede, co-owner of Ulmer’s Hardware Store in Homer, said. “Theoretically, you should see some change. How much of a change will it be for our business? I’d be interested to see. I don’t know.”
Mede has managed the store, which sells everything from firearms to gardening supplies, for the last two years. He said it’s difficult to say just how much business he loses to online retailers overall, but he said the largest impact he has seen is on high-end sporting goods like fishing rods and skis.
“People do more research online and they’re more apt to buy those online where they can get a deeper discount than here,” Mede explained. “Lower value items, items that they need immediately, we see much less decrease in sales due to online sales – at least we think so.”
But how online shoppers’ habits might change as a result of online sales taxes is hard to say and there are more factors than just price, according to Mouhcine Guettabi, associate professor of economics at the Institute of Social and Economic Research.
“There’s the big question of are people actually buying the same things they would otherwise buy in their community online or not,” Guettabi explained.
Guettabi said there isn’t a lot of data on what Alaskans are buying online and how many of those products are available in the communities they live in.
When it comes down to the fundamental question of whether consumers will be more apt to buy items from local retailers because of a sales tax, Guettabi said that will still largely depend on the base price of the product, though he does acknowledge taxes make a difference.
“When, for example, a community across the border from a state levies a tax, we do see people crossing the border to buy things that are not taxed,” Guettabi said.
On high-priced items like a fishing rod, the Kenai Peninsula Borough and Homer’s combined 7.5 percent sales tax might not be enough to close the gap between what consumers pay online and locally.
It might make a difference on items such as paper towels and cleaning supplies purchased from Amazon where savings can vary and some items are actually more expensive.
But consumers like Meyers say they are still saving money.
“It’s still cost effective for me to keep shopping this way. I don’t think it will change the way that I shop online at all,” Meyers said.
Meyers adds that all those savings are delivered to her front door, providing a convenience local retailers may not be able to compete with.
