Does it Matter Who Remits?: Evidence from U.S. States' Voluntary Collection Agreements
55 Pages Posted: 7 Jul 2020
Date Written: June 11, 2020
The South Dakota vs. Wayfair (2018) Supreme Court decision changed a long-standing difference in the way U.S. sales tax administrations treated online and brick-and-mortar commerce. Online retailers now have to remit sales taxes just like their brick-and-mortar counterparts in most states. Despite the attention this decision received, we know little about how shifting the responsibility to remit will affect the tax system. Using states' staggered adoption of Voluntary Collection Agreements (VCAs) which committed large online retailers to remit taxes prior to the Wayfair decision, we find that the increase in compliance resulting from these arrangements was almost fully passed-through to consumers via higher tax-inclusive prices. Consumers also reduced their online expenditures. However, we do not find strong evidence of an impact on the elasticity of the tax base. These results suggest that remittance rule changes such as the Wayfair decision are successful in stemming sales tax base erosion and that the burden of increased enforcement is mainly borne by consumers.
Keywords: Tax evasion, Tax remittance, Online commerce, Sales tax, Tax administration
JEL Classification: H26
Suggested Citation: Suggested Citation