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The Verde Independent | Cottonwood, Arizona

home : latest news : local June 24, 2016

3/28/2012 1:58:00 PM
Special Report: Internet Shopping
Special Report: Internet Shopping Online purchases have negative impact on communities
"In terms of a level playing field, there is a de facto 10 percent Amazon advantage. Even if all things remain equal ... I have 1,200 square feet and I have to pay sales tax. Amazon does not"
-- Joe Neri, Well Red Coyote

Philip Wright
Staff Reporter

VERDE VALLEY - Not many businesspeople would think it fair for their competitors to have an automatic 10-percent advantage on product pricing. They especially would think it is unfair if the government gave their competitors that pricing advantage.

But for some local companies that must compete against other companies selling primarily over the Internet, that disadvantage in pricing is automatic, and it is enforced by local and state government. The disadvantage comes in the form of sales tax.

When a Cottonwood retailer must collect 6.6 percent sales tax for the state as well as local taxes, and an online company does not, customers sometimes opt for the built-in savings. Admittedly, there are other factors, such as shipping costs, that may offset the sales tax advantage for online companies. But overall, the disparity in the online tax loophole puts local retailers at a clear disadvantage.

Local retailers miss out on sales. The state and local communities miss out on revenue.

"I'm sure it makes an impact on revenue collections," said Mike Showers, finance director for Camp Verde.

Showers said he hasn't seen any studies on how much the typical family might spend on the Internet.

"I'm sure we're not talking hundreds of dollars," Showers said. "We're talking thousands of dollars."

He pointed out that although someone might save by not paying sales tax, many times the cost of shipping is actually higher than the tax.

Tracie Schimikowski, president and CEO of the Camp Verde Chamber of Commerce, said communities are hurt by online shopping. "We do our best to promote shop locally as opposed to buying online," she said.

"People tend to forget the trickle-down effect," Schimikowski said. "Shopping locally keeps people employed."

Lana Tolleson, president and CEO of the Cottonwood Chamber of Commerce agrees. She said it is known that a dollar spent locally will multiply four times.

"It's not only the tax we're missing but it's the dollar not turning over four times," Tolleson said.

Rudy Rodriguez, director of finance for Cottonwood said that any time people buy products outside of their city limits, whether online or not, the local community is hurt.

"There are some disadvantages to using the Internet," Rodriguez said. He pointed out that service and warranty support may be better through a local business. "In many cases, there is a distinct advantage to buying locally."

Ted Karstadt, owner of Verde Valley Discount Music in Cottonwood, is a good example of how the sales tax issue can impact a local retailer negatively.

"If you're talking about a keyboard, a nice guitar or an amplifier, the sales tax can be a $100," he said. "The other thing that makes it hard is that some of the Internet companies buy in large volume." He said some of the big online companies might price an item very close to what his cost is.

Karstadt said he thinks the sales tax situation will eventually be changed. "But it might not be changed soon enough. Local retailers might soon be almost extinct."

He said that he has changed his advertising to promote repairs and lessons more than the retail sale of instruments. "Over the last two years, I have greatly reduced my ties to retail," Karstadt said.

He said he has a lot of customers who used to shop online but have stopped. "There are things that are more important than the lowest price."

Joe Neri, owner of the Well Red Coyote bookstore in Sedona, said the sales tax he must collect "absolutely" puts him at a disadvantage against the Internet. "In terms of a level playing field, there is a de facto 10 percent Amazon advantage. Even if all things remain equal."

He said that Amazon in Phoenix has a 4.5 million square foot warehouse. "I have 1,200 square feet and I have to pay sales tax. Amazon does not.

"When people talk about Internet buying, there is a perception that anything I buy on the Internet will be cheaper than if I buy locally," Neri said. In reality, he said, that isn't always the truth.

Neri pointed out that it depends somewhat on the item being purchased. If someone is shopping for a $1,000 camera the sales tax could add another $100. But for music or books the sales tax probably won't have as much impact. Even so, the sales tax he must collect gives the online seller an advantage.

Not all retailers see the sales tax as being that much of an obstacle to making sales.

Lisa Peterson, who owns and operates the Cottonwood Sears Hometown Store with her husband, Paul, agrees that the sales tax does in fact give an advantage to some online sellers. She said that some people complain about their community's lack of services or amenities, yet they are happy to save the 10 percent sales tax. But she thinks there is more to the online story than just sales tax.

"What we're seeing is that the Internet has actually leveled the playing field a little bit," she said.

Lisa said there is a federal law that requires companies, such as Sears, to charge sales tax to out-of-state customers if that company has a store in the state where the customer lives.

Chris Wykoff, owner of Bent River Books and Music in Old Town Cottonwood, said the sales tax advantage only comes into play if the customer is out of state. "If we sell in Arizona, even over the Internet, we have to pay sales tax," he said. "If we sell in California, so far we don't."

Wykoff said the sales tax issue is going to be a problem if he has to charge sales tax on his Internet sales. "I would rather that none of the Internet sales are taxed."

Wykoff's wife, Carla, thinks a system for collecting sales tax for out-of-state online customers would be burdensome, not only for an online giant like Amazon but also for the small, local business. The problem she sees is how difficult it would be to figure and keep track of all the different tax rates in all the communities across the county.

She believes the cost in managing such a system would actually drive prices up. She said she prefers a national sales tax system instead.

Kim Wright, owner of Coin Heaven in Cottonwood also sells preparedness gear and supplies. He said it is difficult to say just how much the sales tax issue hurts his business.

"But it does put us at a disadvantage," he said. "It is a 10 percent difference right there."

He isn't sold, however, on the idea of forcing online businesses to pay sales tax.

"Personally, I'm in favor of leaving the Internet alone," he said. "I like the idea of having as much freedom as we can."

Sherry Church, owner of Trophies Unlimited in Cottonwood, isn't certain that the sales tax is an issue in competing against online companies. "A lot of it has to do with shipping," she said.

"My customers would rather pay me a little bit more knowing that I produce a great product and render great service."

Don Zelechowski, a tax auditor from Phoenix who has done some tax collection work for Camp Verde, says the problem with having Internet companies collect sales tax is that they sell to customers in many cities across the country. He said it would be a burden to expect them to figure sales tax in all of those areas.

"It is a complicated issue," Zelechowski said. "But there is an effort to solve it."

He said the effort includes finding ways to streamline the process. But for that to happen, tax codes must first be uniform.

"Cities and states are looking at a streamline process," he said. "They're trying to go to a nationwide tax strategy."

Taylor Waste
Related Stories:
• Pressure mounts to collect Amazon sales tax
• My Turn: Time to even playing field with online marketplace

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Reader Comments

Posted: Sunday, April 1, 2012
Article comment by: Fred Freburger

Why should a church not pay taxes? It is a great business that normally does not pay any taxes on its profits. Make them pay sales tax too.

Posted: Thursday, March 29, 2012
Article comment by: Many Reasons For On-Line Shopping

I would love it if I never had to buy on-line but that's not going to happen during these harder times, a penny saved is a penny earned. I understand it hurts local retailers but the bottom line is my needs come first and it's not always about the money. I need things made in America, not China. I need variety, not just what Wal-Mart carries. I need knowledgeable sales people that local retailers do not have, so I have to do my own research on-line, so why not then buy online? Having said these things the money now factors in. Savings from taxes, savings from unused gas by not driving to Phoenix, Prescott and other not so local places. Savings from tax's, lower on-line prices and in some cases free shipping. Lastly, the convenience of it. I know most people feel this way and sadly until things change it's on-line shopping for me.

Posted: Thursday, March 29, 2012
Article comment by: Verde Village Resident

How many times have you been told by a cashier in a local business "THERE YOU GO" instead of a "THANK YOU"?

Do you really want my business? SHOW IT!

Not once has my computer acted like it was doing my a favor while taking my money.

Posted: Wednesday, March 28, 2012
Article comment by: Rob Johnson

Bought two items in town for a wheelchair. Had to drive 14 miles to pick them up. Both proved to be defective. They said they had discontinued the product, so could not back them. Ordered online, bought a similar brand, free shipping direct to the door. No wear on car or gas at current prices. Product has a lifetime warrantee, company has been in business 35 years. Paid more for a custom made product, but got more than double value for my money.. Taxes had nothing to so with my choice.

Posted: Wednesday, March 28, 2012
Article comment by: I buy online for the convience, and not because of sales tax.

Before I buy online, I read the reviews from other customers about the product, and then narrow my choice down. Comparing prices is easy too, and I can get exactly what I want delivered in 2 days. I'm not stuck with just what a local store offers. I have even bought a car, a motorhome, 5th wheel and even my current house online after viewing it on The house was 2 weeks from end of escrow before I finally saw it.

Posted: Wednesday, March 28, 2012
Article comment by: Grace Tilden

I didn't even realize that you don't have to charge sales tax online, and I don't think that's why most people who shop online choose to do so. In my case, there's simply a better variety of products online than there is locally.

Posted: Wednesday, March 28, 2012
Article comment by: Online Offers More

Sales tax savings have absolutely nothing to do with why I shop online. In fact, some of the retailers I shop from charge taxes for other jurisdictions....and then there are shipping charges. I shop online....and in Prescott and Phoenix (Hey, they have taxes too!) because the quality of merchandise and the level of service of many local retailers are sorely lacking. I get tired of going to a business and being treated like they are doing me a favor by being open and selling whatever they deem I need. It's not the sales's the service.

Posted: Wednesday, March 28, 2012
Article comment by: AMZN Prime

Local retailers would like to blame the online v. brick and mortar prices on sales tax, but the fact is they simply can't buy in the volume that a company like Amazon can and as result have to charge more.
I try to buy locally as often as possible, but in this economy it's foolish to pay more when you don't have to. Selection and price is king. Sales tax is a red herring.

Posted: Wednesday, March 28, 2012
Article comment by: Verde Valley Citizen

Sales Tax in the Verde Valley is too high. Selection for a basic item is not here. Attitude by some local store management is rude. I try and buy locally but I want what I want and will not waste my money on garbage or rude management. Period. I took marketing in college and it is shameful today of the deceptive practice used. This area could use a mall, american made products, a good farmers market, lower sales tax, better chain restaurants, A better pennys and sears store. I suggest locally to advertise no sales tax, bring in quality, American Made, and local goods.

Posted: Tuesday, March 27, 2012
Article comment by: Slater slater

Sell on the internet.Money won't exist in 3 yrs.
Better get with the numbers game.If it's not on the internet it doesn't exist.
Just like the telephone rolled over yelling over the fence.It's a shame,but u roll with the flow or move 2 Alaska!

Advertize on the net at least.If it's not word of mouth you can't compete.

Posted: Tuesday, March 27, 2012
Article comment by: Brooks King

I disagree that 10% savings is enough to drive me to shop online. What throws me into the open arms of the online retailers is the lack of quality merchandise available in the area. One example - the city of Cottonwood installed a phenominal 18 hole Disc Golf Course. Hundreds of people use it and from personal observation the least number of discs anyone carries is three. Most people carry ten or more. The only sporting goods store remaining in town has a display that showcases 5 or less discs at a time (all beginners quality) and won't custom order anything. It's a shame when a gas station located 1/2 mile from the Disc Golf Course offers more merchandise than a major sporting goods store, but they don't have the space to have more items... Bottom line - carry quality merchandise and a decent variety and people like me will shop locally - regardless of the taxes. Also for you local business owners who don't seem to have a clue - online businesses have to compete against you also: you don't charge shipping! That will more than offset the 10% tax advantage if you have anything that is worth buying!!

Posted: Tuesday, March 27, 2012
Article comment by: Sales Tax Doesn't Drive me Away from Local

Except for groceries or an lumber and hardware, I shop exclusively online. Sales tax has absolutely nothing to do with it.

I like knowing that if I want a tiddlywink, I can go online and somewhere, the exact tiddlywink I want is available. Local brick and mortar can never compete with online for selection. I can spend hours here at the computer finding just the right item at the right price and never have to leave the comfort of my home.

I think that collecting sales tax for businesses out of state is onerous, particularly when a zip code is used as a basis and as in Cottonwood addresses for people who do not live in the city proper, the sales tax is incorrectly calculated and collected.

But with it or without it, I'll never stop shopping online and settling for the paltry selection at a local store.

Posted: Tuesday, March 27, 2012
Article comment by: Forced to Buy on Line

With the sales tax so high it forces people to look for options. For instance, a church building a $1 million dollar facility has to pay sales tax on all the material used to build the building! This is huge! This forces them to buy as much as they can on line to keep the cost down and conserve donated dollars.

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