Can Taxes Shape an Industry? Evidence from the Implementation of the 'Amazon Tax'

Abstract

For years, online retailers have maintained a price advantage over brick-and-mortar retailers by not collecting sales tax at the time of sale. Recently, several states have required that online retailer Amazon collect sales tax during checkout. Using transaction-level data, we document that households living in these states reduced Amazon purchases by 9.4% after sales tax laws were implemented, implying elasticities ranging from -1.2 to -1.4. The effect is more pronounced for large purchases, for which we estimate a reduction of 29.1% in purchases, corresponding to an elasticity of -3.9. Studying competitors in the electronics field, we detect some evidence of substitution toward competing retailers.

Keywords: Amazon Tax, price elasticity, sales tax, internet commerce

JEL Classification: D12, D40, L51