By Russ Britt
The movement to force Internet retailers to collect sales tax is designed to level the playing field between so-called Main Street shops and online rivals like Amazon.com Inc.
The movement, however, could have the unintended effect of paving the way for retail behemoth Wal-Mart Stores Inc. to further consolidate its market power into the online world, if price comparisons are any indication.
MarketWatch conducted an informal shopping expedition at the websites of Wal-Mart (WMT) , its chief brick-and-mortar rival Target Corp. (TGT) and Amazon (AMZN) . The findings show that despite having to charge taxes, Wal-Mart still holds a slight edge over Amazon in price, and a much greater advantage over Target.
MarketWatch priced five identical items at the three outlets -- a videogame, a best-selling novel, a case of golf balls, an iPod Touch and a 32-inch flat-panel television. With taxes and shipping included, the final total for the Wal-Mart shopping trip was $672.15 compared with $672.77 for Amazon, a difference of 62 cents. Target's total was $732.86.
Yet Wal-Mart -- accused over the years of decimating mom-and-pop stores in numerous small towns -- has joined with other retailers to lobby for mandatory sales taxes on online transactions. Company officials say that they've joined with other brick-and-mortar companies to help them level the playing field.
"Main Street businesses and retailers are losing out as online-only retailers are gaming the system and creating an unfair playing field," Wal-Mart spokesman Daniel Morales said in an e-mail. "This is bad public policy. Tax policies should not be any different for online-only retailers than those for retailers that operate brick and mortar operations."
But the ultimate effect of an online sales tax is that Wal-Mart may be able to relegate Amazon to a pricing category that is closer to Target and other retailers, while putting some distance between itself and everyone else.
Amazon has fought against online taxes in the states where they're currently levied, including California, New York, North Carolina, Colorado, Illinois, Rhode Island and Connecticut. This week, Amazon said it would seek a referendum in California to have voters determine whether it should charge the 7.25% sales tax in that state, the highest of any in the nation.
"This is a referendum on jobs and investment in California," Paul Misener, Amazon's vice president of public policy, said in an e-mailed statement. "We support this referendum against the recent sales tax legislation because, with unemployment at well over 11%, Californians deserve a voice and a choice about jobs, investment and the state's economic future."
California's law, which went into effect July 1, allows the charging of taxes through an online retailer's affiliates that refer customers to Amazon and are based in the state. As a result, Amazon has cut ties with 10,000 California affiliates while it seeks to resolve the sales tax issue.
The MarketWatch survey doesn't prove that Wal-Mart will beat Amazon on all pricing; but it does indicate that it can compete with the online retailer. The study chose items that were available at all three online outlets of Amazon, Wal-Mart and Target in the same exact model and/or quantity.
A more detailed study from William Blair retail analyst Mark Miller published earlier this week found that Amazon averaged an 11% price discount compared to its brick-and-mortar rivals. The study looked at a total of 2,400 items, or 100 items for each of the 24 retailers included in the survey.
While items such as shaving cream, toothpaste and laundry detergent are sold at all three, the exact same variations on a brand usually are not available in the same quantities at all three. Target may offer, for example, a particular variation on Colgate toothpaste only in packages of two tubes, while it might be six tubes at Wal-Mart and only one at Amazon.
But Wal-Mart seems to consistently beat competitors in online sales by keeping its shipping costs low. And those low shipping costs come in handy in several cases. One interesting find is that Amazon may fall well short of Wal-Mart in the low pricing department on one of its cornerstone businesses -- book sales.
Breaking out the hardcover best-seller, "Smokin' Seventeen" -- one of the items on the MarketWatch shopping list -- shows that Amazon charges more than $2 more to get that item to consumers than does Wal-Mart.
So the final cost to consumers is $18.50 from Wal-Mart and $19.20 from Amazon. For the record, Wal-Mart charges one penny less than Amazon for the base price of the book, $15.20 vs. $15.21. And the total cost to buy the book at Target, including shipping and taxes, is $22.17.
Danny Diaz is spokesman for the Alliance for Main Street Fairness, a group that seeks to force online retailers to charge sales taxes. He says regardless of what Wal-Mart is charging, a raft of retailers are at a disadvantage when trying to compete with Amazon.
"Any business should be required to compete on the price of the product. They shouldn't have to compete on whether they collect the sales tax," Diaz said. "Ultimately, this is an issue about fairness."