Recent changes to sales tax laws have opened the door to online retailers having to collect sales tax for out-of-state customers. B&H has just launched a product they say will instantly reduce the amount you owe on taxable purchases. Let’s take a look at how it may work and whether it is worth getting.
B&H, in partnership with Synchrony Bank, has launched a credit card called Payboo. When you use this card for your entire purchase with B&H, a reward is instantly issued to your account for the amount of tax owed, leaving the order at effectively the pre-tax amount. Essentially, this means a transaction with the Payboo card costs as much as the same product ordered without tax applied.
This initially seems like a great deal, since state sales taxes can range from 6% to 9%, representing hundreds of dollars in additional expense on items like bodies or lenses. Additionally, the sales tax collection, remission, and discount is all handled seamlessly by B&H, meaning no extra work for the savings.
Among the requirements are to pay the entire balance solely with the card and to apply as an individual with a United States billing address. Make sure to check the fine print to see if your state is eligible for savings.
How It May Work
I’m not privy to the arrangements B&H has made to get this product launched, so what follows is just speculation based on the general nature of credit card processing.
In general, credit card companies like Visa or Mastercard charge fees to the business for the service of processing their transactions. These fees, called interchange fees, vary based on a number of factors. Most crucial to B&H, given their significant online and mail order business, is the fact that fees are higher when the card isn’t physically present. Fees can range from 1.5% to 2.7%.
Along with a reduction in interchange fees, another source of revenue from the card comes from interest charged on purchases. For this card, the APR is currently shown as 29.99%.
Lastly, B&H stands to benefit from improved customer loyalty. If you have the card, you’re more likely to continue ordering with B&H.
Does It Make Sense to Apply?
Credit and financing decisions are highly individual and very important choices, so make sure to thoroughly consider the costs and benefits. Additionally, the rates mentioned in this article are generalizations, rounded, and may change at any time.
For perspective, travel credit cards can earn anywhere from 1.5% to 4% back in redeemed rewards, with cash-back cards earning about 2%. So, when compared to even low sales tax states at 6%, the savings with Payboo can be meaningful. Using it on a $5,000 purchase made in California, with its 8.5% sales tax, will save you about $275 over a competing rewards credit card.
I feel that this product makes sense if you are very financially secure, are planning on significant B&H purchases, and will be able to pay off the entire amount due on the card. Unfortunately, the APR is higher than most other cards, meaning that carrying a balance of even a small amount will wipe out any savings. Since the card is only for use at B&H, it’s another bill to pay and more work to manage compared to the credit card you already hold, but it can save you a couple hundred dollars on significant purchases.
If you live in a high sales tax state and hate to see your purchase price go up by 10% at checkout, B&H may have just given you quite the gift. I’m impressed by the size of the effort B&H made with this product, combined with its relatively straightforward policies.
Lead image provided by Ales Nesetril.
But can you double dip if your purchase is already tax exempt?
From what I can tell, they don't let you get the card if you're already tax exempt. I plugged my zip code in for giggles to see if I was eligible and it said it wasn't offered in my state. Sure enough, I checked my last order and there wasn't any tax added onto it.
Hi Johnny- doesn't look like it. You can use it on the business and education portals, but won't be refunded anything if you don't pay taxes in your state or are exempt for another reason.
I meant business purchase, thanks for the info.
This could shift online purchasing away from B&H and towards other online retailers like Amazon, especially with sellers like Adorama listing products on Amazon that are still (at the moment) tax free for California buyers. Chase's Amazon credit card yields a 5% cash back return, so it's an easy decision for people who already have that card in their wallet.
Is it 5% on just Amazon purchases? That seems crazy high for ALL purchases but I know Amazon is willing to give affiliates 2-4% on almost all products so it seems like they have a few percentage points to play with there. My credit card of choice is through Fidelity because they give 2% back on every single purchase. Sure I miss the 3 and 4% cash rewards on a few things but I'm guaranteed 2% on everything.
Hey, Patrick! It's 5% on any purchases made on Amazon, but not limited to just Amazon-sold products. We bought a house at the beginning of the year (non on Amazon!) and bought our washer and dryer from a third-party seller on Amazon. I got a cool $150.00 cash back bonus on the following statement period. The card also gets you 5% cash back at Whole Foods.
I use a combination of the Amazon card and several of Chase's other cards to maximize point earnings across my everyday purchases.
So you use the Amazon card for everything else and the B&H card at B&H. Sales tax here is 8.875% so if they're effectively giving me that back, it's a no-brainer for purchases from that store because nothing else even comes close.
In the scenario I modeled, other cards come somewhat close- I don't know if $100 or $200 in savings is enough for the credit hit and work of dealing with another card.
One thing I didn't have space to mention is sign up bonuses for other cards- if you are ready to sign for a new card anyway, many cards offer $500 to $1000 in bonuses for putting a few thousand on the card in the first few months. That could tip the scales back in favor of regular rewards cards.
Hey Rainier- that's a good tip. If you're looking to maximize those points and have a significant purchase coming up, check out new card signup offers. For example, spending $3k in the first 3 months can be very easy to hit via a lens and body, while offering a couple hundred dollars worth of rewards points.
I expect B&H is just out in front of compliance. Since SD Vs. Wayfair, a number of states have implemented new sales tax laws, which all major retailers will have to comply with.
Yeah, South Dakota vs. Wayfair is exactly the reason. B&H had to respond in some way because online sales probably represents the majority of their sales. The credit card is a creative solution but at the end of the day, it's still another credit card to apply for and the adoption rate may not be high because of that.
Seems like it will only be useful for high volume buyers if you're buying a lot from B&H or a single large purchase- but I'd guess those are the most valued clients anyway.
B&H will get rich off the 29.99% APR. That's the only way they can fund the tax rebate and pay the card fees.
It's my understanding that the money collected via APR goes to the issuing bank, not the retailer so the money does not go to B&H.
That's correct. B&H gets the increase in sales by partnering with a CC company (more inciting to buy and have it now) and the CC company gets the money made from APR. Once you buy say $100.00 on CC from B&H, the CC company pays B&H at the transaction and now you owe the CC company the $100.00 and any interest you incur.
The APR means nothing as long as you pay your balance off each month. If you just treat the card the way you would cash (granted, more difficult for some than others), you should be fine. Insanely high APR is not really unusual for any store cards.
Right- it only comes into play if you carry a balance. But even a small slip up could mean losing any potential savings to interest, so I thought it important to mention.
I set all of my minor cards to automatically pay off the entire balance each month from my checking account. Not much to think about as long as i don't spend money I don't have in the bank. But yes, it requires a certain degree of financial discipline.
That's a good practice, in my opinion. Fees and interest are just throwing money away. When it comes to this card, I'd probably consider using that spending as a headstart on another card's signup bonus, anyway.
That APR definitely feels like it is on the higher end. I don't know for sure that they even directly profit from it- maybe it was the only way to make the deal work with the issuing bank, given the very specific nature of the card.
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Err... Hasn't it always been that way? You were never actually supposed to just evade sales tax by shopping out of state as far as I'm aware. It was one of those laws like jaywalking. Everyone did it anyway, but that doesn't mean it was legal.
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I expect there won't be many sites that don't collect sales tax in the future. Numerous laws are being drafted to expand the definition of nexus for sales tax purposes, and soon most online retailers will need to comply.
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If you've passed through customs, you already know they're looking out for that sort of thing. Federal import duties aren't that significant- you're eligible to bring through thousands with no duty, and it ramps very slowly from there.
Michael is right- technically, it was always that way, but just very difficult to enforce. This stands to level the playing field between B&H/Adorama and local sellers, as sales tax could be a significant part of the cost of a camera.
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You've always "had" to pay it. For years, local sellers in high sales tax jurisdictions would lose business to online stores- this is essentially closing a loophole. States will need to fund themselves somehow, so if you don't support sales tax, you'd need to be OK with increased income or property taxes.
If I am not mistaken, it is a USA thing only. Does not help for example the Canadians.
Yeah, as I mentioned, it requires a US billing address for them to determine how much sales tax is owed. This is primarily to blunt the impact of a recent change in how the federal government regulated state's sales tax laws.
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This seems suspiciously too good to be true.
It'll save you a few percent over competing rewards credit cards (without a signup bonus) or be a few percent worse (with bonus). I think it really highlights how much incentive there is to use a rewards credit card- a debit card or cash purchaser is essentially paying a 5% premium.
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APR 29.99%... you REALLY better pay this off on time or they will be sticking to you pretty hard and all of the other offers just become the shell game that got you trapped into it.
Scammys in LA used to have "Samys pays the sales tax" specials, usually around a holiday. That came in handy when I bought a Canon 1Ds , and a few big ticket items over the years. LA CA sales tax is like 9.25%
I have not had the need to buy much lately but I wonder they still do it.
I wonder if a CC with a 29.99% rate shows up differently on credit reports ¯\_(ツ)_/¯
I don't think so- a card is a card, assuming you are making the payments it should just show up like any other card. Not sure how it is treated in terms of utilization, which would be the only notable thing for reporting.
Since the credit agencies formulas are top secret I would not be surprised if having a 12% card was more favorable than a 29% card whether you use it or not.