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Online Sales Tax: A Blessing in Disguise?

More and more states are moving to impose new sales taxes for online purchases to make up for budget deficits. As online prices move in line with brick and mortar retailers, will online stocks take a hit?

Amazon.com
Amazon.com

“This was just a matter of time,” Stacey Widlitz, SW retail advisor, told CNBC. “You’ve had everyone complaining from Best Buy to Wal-Mart because of the price spread.” She expects the new tax to level the playing field for online and offline retailers.

According to the national average, Amazon.com’s prices are about 12 percent lower than Wal-Mart. Many worry that adding an 8 percent online sales tax could decrease the incentive for online shopping, but the actual impact of the tax remains to be seen. Additional online retailers to watch include eBay.com and Overstock.com.

Dani Hughes, founder and CEO of Divine Capital Markets, does not view the tax as a threat to online retail. “This is not going to have such a dramatic effect on all the online retailers,” she said listing Amazon, Staples and L.L. Bean as companies that could potentially benefit from the online sales tax.

Widlitz agreed explaining the tax is a compromise for big online retailers because it will provide new growth opportunities despite rising costs. “The big deal here is Amazon is coming to the table and paying taxes in states,” she said. “This gives them the ability to build more distribution centers and be able to ship, even potentially, on a same day basis.”

Widlitz’s top online retail pick continues to be Amazon. “It’s about execution. It’s about getting the customer their product last minute during Christmas,” she said, adding that Amazon will only get stronger with more distribution centers.

Hughes expects online stocks to remain unchanged even with the price increases. She cited the new shopping culture as a source of her confidence in online retail. “Collectively, we’ve moved to online shopping as a nation, and we’re going to continue to see that,” Hughes said.

Online retailers are not the only ones impacted by the new tax.

“This is a positive for all,” Hughes said explaining that states will benefit from increased revenue. In addition, small business owners will benefit from the reduction in online versus brick and mortar price discrepancies. “It effectively helps the smaller guy participate,” she said.

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Disclosures:

Stacey Widlitz has worked at UBS, SG Cowen, Fulcrum Partners and in 2005 was one of three analysts to launch the Research Department at Pali Capital, where she covered Retail and Home Video for 5 years.

No disclosure information was available for Dani Hughes.

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