Letter: Jupiter Responds to ‘Whack’ Over Online Sales Tax Report

As the author of the report in question, “Sales Tax: Avoidance Is Imperative to Few Online Retailers and Ultimately Futile for All,” I take exception to Ken Magill’s contention that Jupiter Research is unqualified to address the fundamentally important issue of the future of sales-tax collection for online retailers and that consumer survey data has no merit (“CRE Deserves an Apology; Jupiter Needs a Whack,” Feb. 17).

Jupiter is uniquely qualified to comment on this issue by virtue of having been researching consumer use of technology and, specifically, online commerce for quite some time. Jupiter was founded as a consumer technology research firm in 1986 and began covering online commerce in 1994.

Jupiter, a firm that I’ve been proud to be part of for nearly five years, has fielded thousands of consumer and executive surveys, has studied traffic and transaction data and has engaged in strategic dialogue with the highest-level executives in hundreds of online retail organizations.

Now onto the issue that readers really care about: Does the forced collection of sales tax put one retailer at a substantial disadvantage to others? There is obviously an inverse relationship between price and demand. Our research, however, strongly suggests that sales tax is a lot less elastic than product or shipping prices.

The results from the consumer survey that supported this particular report were clear: 82 percent of the online population never makes merchant selection decisions based on whether a particular retailer collects sales tax (the majority of this group was unaware that sales tax can be avoided by shopping around; the rest are aware that sales tax can be avoided by shopping around, but never let it affect merchant selection). The bulk of the 18 percent that do allow sales tax to determine merchant selection say that it only sometimes affects merchant selection.

To Mr. Magill’s point, we have considered whether sales tax might be a common cause of shopping cart abandonment. A March 2002 survey asked consumers that had abandoned shopping carts why they had last abandoned a shopping cart. In the list of 15 reasons they could have selected, sales tax was cited by fewer than 1 percent of those surveyed, second to the bottom of the list, just inching out the four (yes, 4 – not 4 percent) consumers who were upset that a site didn’t offer gift-wrapping services.

Though consumer survey data has limitations, it’s an essential tool for any company forced to make decisions in absence of empirical data. As upsetting as it may be to those of us who are forced to make business decisions given ambiguity and lack of clear precedent (this group includes essentially every business that has ever existed), careful use of consumer survey data is far better than guessing. Retailers can’t afford to throw up their hands because issues are “too complex” or data is “historically” unreliable. They need to make a call, and Jupiter aims to help them.

Ken Cassar, Senior analyst, Jupiter Research

[email protected]

Ken Magill responds: I never said Jupiter was unqualified. I said Cassar’s report was irresponsible, and I stand by the assertion. There is no way Jupiter can predict the effects of a new tax on sales by surveying consumers. And it doesn’t take legions of statisticians to understand this fundamental direct marketing concept.

Though survey research has its place, the reason I took exception to the report is that increasingly revenue-hungry legislators no doubt will hold it up as “proof” that the effects of forcing merchants to collect sales taxes in states where they have no physical presence would be negligible. And, no, businesses do not have to “make a call” on collecting new taxes. They either will be forced to do so, or they will not. The online sales tax debate is not akin to deciding whether to invest in wireless marketing. As a result, online sales taxation is an area where merchants would be far better off without Jupiter’s “help.”

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