Testing the Models of Tax Compliance: The Use-Tax Experiment
59 Pages Posted: 4 Mar 2015 Last revised: 1 Mar 2016
Date Written: March 2, 2015
Researchers in a number of fields have explored the question of why people voluntarily comply with the tax laws. The resulting scholarship suggests that a number of factors influence that decision, but the precise role of, and interaction between, those factors continue to be subjects of debate. More research is thus needed, including field research to put the current theories to test in real-life settings. This Article proposes that state use taxes—known primarily as the taxes that are due when taxpayers purchase items online without paying sales taxes—provide a remarkable opportunity for that research. Compliance with those taxes is virtually nonexistent, and most discussions of that issue simply assume that obtaining meaningful levels of voluntary compliance will be impossible. Those assumptions are largely based on rudimentary applications of a basic deterrence model, which relies heavily on audit risk and penalties as motivators of compliance. The modern models of tax compliance, however, offer many different theories with which states could experiment to promote the voluntary payment of those taxes. That experimentation would not only help states to increase their tax collections, but would also help states and researchers to obtain a deeper understanding of the very models being applied. The lessons learned from those efforts could thus help to inform researchers, the federal government, and governments worldwide regarding how to best encourage voluntary compliance with tax laws more generally. This Article begins the process of obtaining those reciprocal benefits by summarizing the current models of tax compliance and by offering concrete examples of how states could use those models within the context of their use-tax systems. The Article concludes by exploring the features of state use taxes that make them especially well suited for these efforts.
Keywords: Tax Compliance, Use Tax, State Tax, Tax Gap, Social Norms, Behavioral Economics, Procedural Justice
JEL Classification: H20, H24, H25, H26, H29, H70, H71, H72, H73, H79, K34
Suggested Citation: Suggested Citation