Tax Sensitivity in Electronic Commerce*

Abstract

AbstractEmpirical research into the impact of taxation on e‐commerce has concluded that there is a significant positive relationship between local sales tax rates and the likelihood that a person will shop online. This paper finds that the tax sensitivity for online purchases at the local level is much lower than previously estimated and is not significant under previous general models. However, by using a splined tax‐rate function, this paper finds that consumers living in counties with high sales tax rates are still sensitive to tax rates when deciding whether to shop online, while those in counties with low tax rates exhibit no significant sensitivity.