Economic Effects of Sales Tax Collection Requirements: Evidence from Wayfair

Abstract

I examine the economic effects of sales tax collection obligations for remote sellers. Using the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc., I first examine investor and analyst responses to the requirement that remote sellers collect tax in states where they have no physical presence. I find that online and catalog retailers’ stock prices and analysts’ forecasts of their sales both decline by about one percent around the Court’s decision. These results are consistent with the expectation that sales tax collection requirements reduce remote sellers’ competitive advantage over brick-and-mortar retailers. I then examine firms’ geographic location decisions. Wayfair is premised, in part, on arguments that the former standard distorted economic activity by creating incentives for remote sellers to limit their presence to fewer states to avoid collecting sales tax. Although Wayfair removes these incentives, I do not find strong evidence that remote sellers expand into new states.

Keywords: Sales Tax, State Tax Nexus, Wayfair, Event Study, Location Decisions, E-commerce

JEL Classification: G14, H25, H71