A box of Amazon.com is portrayed on the balcony of a house in Golden, Colorado, July 23, 2008.
Credit: Reuters/Rick WilkingBy Alistair BarrSAN FRANCISCO | Fri 09/09/2011 11:42 EST
SAN FRANCISCO (Reuters)-agreement Amazon.com Inc to start collecting sales tax in California next year can help brick and mortar rivals compete on price with the world's largest Internet retailer.
In a meeting on Wednesday, representatives from Amazon, members of the Legislative Assembly of the State and California Retailers Association, the parties reached an agreement of "handshake" on the issue, according to Mark Hedlund, a spokeswoman for Senate President Pro Tem Darrell Steinberg.
Amazon will drop its effort to overturn a law passed earlier this year that required the company to collect sales tax from July. In return, Hedlund Amazon won't have to collect sales tax in California until September 2012, said.
If Congress passes tax legislation national sales online before July 1, 2012, this law will replace the agreement for California. The handshake agreement is being written as an amendment to the State law and the changes still have to be voted on, hopefully this week, Hedlund said.
Online retailers without a physical presence in a State do not need to collect sales tax on purchases by permanent residents. As e-commerce has increased in recent years, this exemption came under pressure from several States looking for big budget gaps.
Brick and mortar retailers have pushed hard behind the scenes to get Amazon to collect sales tax. The Pact reached Wednesday is a victory for companies like Wal-Mart Stores Inc, best buy Co Inc and Staples Inc.
"The Internet is an important sales channel now and its growth will force a solution of Congress, said David French, Senior Vice President of government relations at the National Retail Federation.
The business of California puts Amazon and bricks and mortar retailers more on the same page, which will contribute a national solution, he added.
"What matters is that a potential agreement is a positive for brick and mortar retailers as it will level the playing field for the sales tax in a critical State in less than 12 months and may become the model applied in the entire country," Gary Balter, analyst at Credit Suisse, wrote in a note to investors on Thursday.
In the retail sector of hard line, the biggest beneficiaries will be categories which are most prices are sensitive and where Internet penetration is above the average of 7 percent, said the analyst.
E-commerce accounts for more than 20 percent of consumer electronics and office supply sales, according to Balter.
"However, Amazon and other Internet retailers are making serious inroads in the supply of Pet, Home Improvement and other categories and this agreement may slow down," the analyst added.
Amazon spokeswoman Mary Osako said: "on prices, we offer low prices or do not collect and remit sales tax."
She refused to comment on the business tax of California.
Shares of Amazon fell 1.2% to close at $ 217.26 on Thursday.
The most expensive items sold online, such as large-screen TVs and diamonds, are likely to be affected by the collection of sales taxes, said Colin Sebastian, an analyst at RW Baird.
The actions of the Blue Nile, which sells diamonds and jewelry online, decreased by 2.3% to close at $ 36.74 on Thursday.
Sebastian said that the question of sales tax online looks more like a "smokescreen" to the major problems faced by brick and mortar retailers.
Scott Tilghman, an analyst firm, estimates the Stews & majority of consumers shop online for convenience and selection rather than avoid sales tax.
"There are marginal customers that make shopping online why, but my sense in talking to a wide range of people is this group is a small minority," he told Reuters.
There is a perception that online deals are cheaper, but that is not always the case, Tilghman added.
Where cheaper products online, the price advantage can shrink as sales tax is imposed, but it still exists.
"Transparency through apps and sites price comparison shopping is more likely to pressure brick and mortar sales tax collection is to help you," said the analyst.
(Reporting by Alistair Barr, Dhanya and Skariachan Jim Christie; edited by Gary Hill and Andre Grenon)
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