Incentivizing Out‐of‐State Vendor Compliance with Sales Tax Revenue Rebates

Abstract

AbstractIncreased awareness of e‐commerce revenue loss coupled with declining sales and use tax receipts has prompted states to undertake at least one of two approaches to capture foregone revenue from remote sales: Amazon tax legislation and membership of the Streamlined Sales Tax Project. Both policies, however, suffer from significant challenges that undermine their effectiveness in achieving the desired goal. This paper proposes an alternative policy that encourages out‐of‐state vendor sales tax compliance through the use of sales tax revenue rebates as an incentive. It is argued that revenue incentives used in this fashion are more resistant to the criticisms leveled at tax incentives in general. The advantages and disadvantages of revenue rebates as a tool to incentivize out‐of‐state vendor compliance are also explored.