Sales Taxes and the Decision to Purchase Online

31 Pages Posted: 14 Oct 2003

See all articles by James Alm

James Alm

Tulane University

Mikhail Ion Melnik

Niagara University - Commerce Department

Date Written: June 2003

Abstract

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

Alm, James and Melnik, Mikhail Ion, Sales Taxes and the Decision to Purchase Online (June 2003). Available at SSRN: https://ssrn.com/abstract=453320 or http://dx.doi.org/10.2139/ssrn.453320

James Alm (Contact Author)

Tulane University ( email )

United States
5048628344 (Phone)

Mikhail Ion Melnik

Niagara University - Commerce Department ( email )

P.O. Box 2201
Niagara University, NY 14109
United States

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