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What New York’s $3 Tax for Online Package Deliveries Could Mean for Retailers

A new way to raise revenues for New York City’s transportation system could have rippling effects for retailers.

This week, Democrat Robert Carroll put forth a bill that would add a $3 surcharge on packages delivered to New York residents, with exceptions for medicine and food. The money, according to a summary on the New York State Assembly website, would be used to fund “the operating costs of buses and subways in the city of New York.”

In a Daily News op-ed, Carroll and Transport Workers Union international president John Samuelsen suggested that a new tax on online deliveries could encourage New Yorkers to support small businesses and local shops instead of massive corporations.

“A delivery surcharge would incentivize some consumers to patronize neighborhood businesses instead of reflexively ordering items online from Amazon, Walmart, Etsy or eBay,” Carroll and Samuelsen wrote. “They might be reminded how local mom-and-pop stores, and bigger retailers like Bloomingdales and Macy’s, are part of what makes a city dynamic, diverse and interesting. These businesses also employ our neighbors.”

The bill has received criticism from prominent lawmakers, including New York congresswoman Alexandria Ocasio-Cortez. “You know why all this backlash happens when we say ‘Tax the Rich?’ Because the unquestionable norm is to tax the poor and working class,” she wrote on Twitter. “Maybe instead of taxing people who need baby formula and essential goods, we tax those who have profited billions from a global pandemic?”

In the wake of the COVID-19 health crisis, the challenges faced by traditional retailers have accelerated at an astonishing rate. Meanwhile, e-commerce giants and big-box chains like Walmart and Amazon have been able to leverage their scale and digital prowess as well as their classification as essential retailers. As a result, they have enjoyed big gains as other businesses floundered.

In late October, Amazon reported a 37% rise in third-quarter revenues to $96.1 billion, while Walmart and Target posted Q3 sales growth of 5.2% to $134.7 billion and 21% to $22.63 billion in mid-November. Their digital sales have also soared as customers take advantage of contactless services such as buy online, pick-up in store and curbside pickup — offerings that some smaller and independent retailers might be slower to adopt.

Amid the pandemic, safety concerns have forced people of all ages and socioeconomic backgrounds to flock to digital channels. During the third quarter, the Department of Commerce saw a 36% gain to $209.5 billion in e-commerce sales. Such a tax, said some experts, could likely deter consumers from shopping online and trickle down to retailers that are already struggling.

While he has not seen the details of the bill, Pitney Bowes EVP and president of global e-commerce Gregg Zegras acknowledged that millions of Americans have shifted their purchasing to online channels in recent months — benefiting both people seeking to stay safe and companies adapting to the rise in digital that was already occurring prior to the outbreak.

“The e-commerce industry — which includes many small businesses and even independent sellers who use marketplaces like eBay and Etsy — has made significant investments this year to get goods to consumers safely,” he said. “It seems that this tax would punish both consumers and businesses.”

However, other experts have pointed out the potential advantages of the surcharge — from easing the burden of stretched-thin delivery networks for retailers to reducing waste associated with large volumes of packages shipped out each day by carriers like the UPS and FedEx. (A New York Times report last year estimated that nearly 1.5 million packages on average are delivered each day in New York City alone.)

“There will be some pushback [to the tax], but I do think it will make consumers think twice about ordering something different every single day and maybe want to consolidate those orders,” said Gabriella Santaniello, founder and CEO of consulting firm A Line Partners. “For retailers, conversion rates could improve and consequently so could basket size. Shoppers might not be going to those sites as frequently, so when they do, they buy with intent. We’re already seeing this trend in some retail stores right now.”

As the number of infections continue to rise in major metropolitan cities, including New York, experts have suggested that even more consumers will flock to digital channels and essential retailers to make their purchases.

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