Will Sales Taxes Save Best Buy?
Best Buy (NYSE: BBY) shares closed up 5 percent at $12.21 on Thursday following news that the company was reclaiming market share from online retailers now forced to charge sales tax in some states.
Then, on Friday morning, Best Buy reported that sales at stores open at least one year fell 1.4% in the nine weeks ended January 5. Sales at U.S. stores during the recent holiday season were flat. Even with these less than impressive figures, BBY rallied another 7 percent in pre-market trading.
Best Buy hopes for a turnaround as Amazon (NASDAQ: AMZN), which ended the trading day yesterday down 0.38 percent at $265.34, is forced to collect sales taxes in more states.
Best Buy spokeswoman Amy von Walter told Reuters that in California, Texas and Pennsylvania -- where Amazon recently started collecting sales tax -- Best Buy has seen a 4 to 6 percent increase in online sales versus the rest of the chain.
The sales tax playing field for brick and mortar retailers is not level yet, but the trend is growing. Many states, hungry for extra tax revenue, have introduced new laws requiring that Internet-only retailers also collect sales tax.
Presently, Amazon collects sales taxes in only seven states. There will be seven more by 2016. According to the National Conference of State Legislatures, the states that currently collect sales tax from Amazon are Kansas, Kentucky, New York, North Dakota, Texas, Washington, and Pennsylvania.
States that will collect in the future: New Jersey, Virginia, Indiana, Nevada, Tennessee, South Carolina, and California.
Big retailers like Best Buy hope that the requirement to collect sales tax will reduce Amazon's price advantage and help them recoup some sales that have been lost to the Internet retailer.
It is widely believed that many shoppers visit retailers like Best Buy to inspect merchandise and ask questions (a process known as showrooming), then return home to order from Amazon. Best Buy and others hope to gain sales as the price differential disappears.
Other retailers that might see sales increase as more states force Amazon to collect sales tax include Wal-Mart (NYSE: WMT), Sears (NASDAQ: SHLD), and Target (NYSE: TGT). Target recently announced year-round price matching with online retailers.
An Amazon spokesman declined to comment when asked if the company saw an impact on fourth-quarter sales with the imposition of sales tax in California, Texas and Pennsylvania. In the past, Amazon executives have said there was little or no sales impact from such changes in other regions.
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