Destination Taxation and Evasion: Evidence from U.S. Inter-State Commodity Flows

16 Pages Posted: 16 Aug 2015

See all articles by William F. Fox

William F. Fox

University of Tennessee, Knoxville - College of Business Administration

LeAnn Luna

University of Tennessee, Knoxville - College of Business Administration - Center for Business and Economic Research

Georg Schaur

University of Tennessee, Knoxville - College of Business Administration - Department of Economics

Date Written: February 1, 2014

Abstract

Tax evasion has been an important issue in the accounting literature for several decades, but the focus has been on corporate income taxes. We develop a new way to examine tax evasion that focuses on corporate transactions, rather than corporate profits. Specifically, we examine how commodity flows respond to destination sales taxes, allowing for tax evasion as a function of distance between trade partners. After accounting for transportation costs, we find that the effect of taxes decreases as distance increases. This is consistent with the notion that longer distances between trade partners hinder government oversight and increase the likelihood of successful tax evasion. Our results are robust with respect to outliers, strategic neighbor effects, information sharing agreements and other re-specifications. These results are important to policymakers because they evidence the difficulty of enforcing destination taxation in open economies such as U.S. states and the European Union.

Keywords: Taxation, Evasion, Multijurisdictional

JEL Classification: H25, H26, H71

Suggested Citation

Fox, William F. and Luna, LeAnn and Schaur, Georg, Destination Taxation and Evasion: Evidence from U.S. Inter-State Commodity Flows (February 1, 2014). Journal of Accounting & Economics (JAE), Vol. 57, No. 1, February 2014. Available at SSRN: https://ssrn.com/abstract=2644417

William F. Fox

University of Tennessee, Knoxville - College of Business Administration ( email )

453 Haslam Business Building
Knoxville, TN 37996
United States
865-974-5441 (Phone)
423-974-3100 (Fax)

LeAnn Luna (Contact Author)

University of Tennessee, Knoxville - College of Business Administration - Center for Business and Economic Research ( email )

711 Stokely Management Center
Knoxville, TN 37996-4334
United States
865-974-6080 (Phone)
865-974-3100 (Fax)

Georg Schaur

University of Tennessee, Knoxville - College of Business Administration - Department of Economics ( email )

508 Stokely Management Center
Knoxville, TN 37996-0550
United States

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