Sales Taxes and the Decision to Purchase Online
31 Pages Posted: 14 Oct 2003
Date Written: June 2003
There is much speculation that the current differential tax treatment of retail versus e-commerce purchases may act as an incentive to conduct shopping online. This paper uses data from the 2002 Current Population Survey to estimate the effects of local sales tax rates on the household's decisions to obtain internet access and, conditional upon access, to participate in online shopping. Our results demonstrate that local sales taxes have no statistically significant impact on the decision to obtain access to the internet. We also find that a higher sales tax rate reduces the probability that consumers purchase online, and this result is quite robust across a wide variety of specifications and empirical approaches. However, we find that this impact is typically much smaller than earlier estimates. In our preferred model, the elasticity of the probability of online purchases with respect to the tax price of online purchases is only 0.52, so that taxing internet sales would reduce the probability of online purchases but by only 6 percent.
Keywords: sales taxes, online shopping, e-commerce, cross-border shopping, internet, taxation
JEL Classification: D12, H29, H71
Suggested Citation: Suggested Citation