Economic Effects of Sales Tax Collection Requirements: Evidence from Wayfair

Abstract

This study examines the economic effects of sales tax collection obligations for remote sellers. Using the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. as a setting, I first examine investor responses to the requirement that remote sellers charge and collect tax in states where they do not have a physical presence. I find that stock prices for online and catalog retailers decline by about one percent around the Court’s decision. I further find that analysts revise their sales forecasts downward for online and catalog retailers following the decision, also by about one percent. These first two results are consistent with the expectation that sales tax collection requirements negatively affect remote sellers’ future sales and reduce a competitive advantage relative to traditional brick-and-mortar retailers. I then examine firms’ geographic location decisions. The Wayfair decision is premised, in part, on arguments that the former standard distorted economic activity by creating incentives for remote sellers to avoid establishing a physical presence in states where it would trigger a sales tax collection requirement. Although Wayfair removes this incentive, I do not find strong evidence of an increased propensity among remote sellers to expand into new states.