Will Sales Tax Hurt Online Sales?

Plus: Amazon.com backs off apparel recs; and a sparkling new site

As reported in the national press recently, a number of large retailers started collecting taxes on their online sales earlier this month—and not just from shoppers who live in the states where the companies maintain stores or distribution centers. In return, 33 states (California has not signed on yet) and the District of Columbia agreed to amnesty those retailers from liability for taxes not previously collected on Internet sales. Most of the retailers involvedincluding such majors as Wal-Mart, Mervyn’s, Marshall Fields and Targethave physical locations in the 45 states that levy sales taxes.

The agreement will give states a new revenue source for battling historically high budget deficits. It is also a victory for state and local governments that want to simplify their tax systems to accommodate e-commerce.

Previously, a national moratorium on such taxes was enacted to help the Internet retail medium grow. It did. But those days are probably gone forever, and e-tailers will face added pressure to lower or eliminate shipping charges so that they can remain competitive with bricks-and-mortar stores.

The amnesty is a victory for the Streamlined Sales Tax Project, a group of 33 states and the District of Columbia that approved a plan to simplify how states collect sales taxes on products sold online. The project asks states to create straightforward tax codes to accommodate e-commerce and outlines tax-reporting requirements for online merchants that are less complicated than those previously needed.

But how big of a victory will this be if the “Net” result is a decline in online commerce that hinders the medium’s growth?

Currently, San Francisco-based TechTV’s Web site, www.thescreensavers.com, is conducting a poll that poses the question: “Will Net taxes stop your online shopping?” Two-thirds of those responding so far have answered “yes.”

The new taxes may, however, just turn out to be a bump in the road. For many online shoppers, avoiding taxes was an incentive, but it was not their prime motivation to shop online.

Personal, not necessarily profitable

Amazon.com (Nasdaq: AMZN) booked its second-ever profit in last year’s fourth quarter as shoppers flocked to the site for holiday purchases and pushed revenues to record levels. Having successfully experimented with free shipping on purchases over $25, the e-tailer announced that it will extend this practice throughout 2003.

But it remains unknown how much Amazon’s new apparel portal, which launched in November, contributed to the bottom line. Chief executive officer Jeff Bezos said only, “Thousands of shoppers bought clothes through the Amazon site,” according to ecommercetimes.com.

Amazon was a forerunner among Web sites featuring “personalization technologies” that track what consumers watch, listen to or read. Embedded software recommends videos, DVDs, music, books and clothes based on a customer’s previous purchases. This feature is supposed to contribute to Amazon’s long-term profitability, but it can come off as patronizing to consumers when the software guesses badly, as with a suggestion that a customer buy a leather jacket because he just ordered a DVD of “Rebel Without a Cause.” Amazon appears to be backing off a bit as it now “invites” consumers to sign-in if they want the service.New jewelry site sparkles

Orajewels, an international fine-jewelry manufacturer, just launched its online store, www.orajewels.com. While many companies are scaling back or eliminating new Internet initiatives, Orajewels is bucking the trend.

While at first glance it looks like many other jewelry Web sites, the new site succeeds where others have failed by presenting its products in clear, defined detail.

The Web site gives Orajewels a major online jewelry presence through the marketing of uniquely designed jewels sold directly to consumers at substantial discounts, said Judy Shapiro, executive vice president of marketing for Orajewels.

“We believe the quality of our pieces, in combination with our passion for creating unique designs, will give customers a unique shopping experience with a wide range of dazzling jewelry choices at all price points,” said Shapiro. “Most consumers know that to get the best value for their jewelry dollar, it is best to go directly to the manufacturer rather than retail stores.”

All gemstones and diamonds are featured in a collection of rings, bracelets, earrings, necklaces and pendants for women, men and children. Every month, Orajewels will feature a new designer collection from its renowned workshops or from other jewelry designers. In addition, it will carry a large online selection of brand-name watch manufacturers.

“We decided to launch the site in time for Valentine’s Day so consumers would have an exciting new source for their special Valentine’s Day purchases,” said Shapiro. “We are thrilled with our early results and will build on this success by providing customers with a world-class online shopping experience.”

The site also offers a comprehensive Learning Center to educate customers about diamonds, pearls, gemstones, gold and platinum, as well as the best ways to care for fine jewelry.