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Tax Avoidance through E-Commerce and Cross-Border Shopping

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  • Benjamin Harbolt

Abstract

As e-commerce has grown over the last few decades so has states' concern for its use for sales tax avoidance. Using a panel of Washington State tax jurisdictions from 2005 through 2015, I estimate the effect of a sales tax regime change on the elasticities of taxable sales. I find the regime change, targeted at reducing sales tax avoidance through remote purchases, had a differential impact that varied by tax jurisdiction. I find that in tax jurisdictions near the border of lower-sales-tax states (Oregon and Idaho) consumers became more responsive to the difference in sales tax rates across borders than their counterparts in the interior of the state. I interpret this as a substitution by consumers along the Oregon and Idaho border from e-commerce purchases to cross-border shopping in order to avoid sales taxes.

Suggested Citation

  • Benjamin Harbolt, 2019. "Tax Avoidance through E-Commerce and Cross-Border Shopping," CESifo Working Paper Series 7814, CESifo.
    • Handle: RePEc:ces:ceswps:_7814
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp7814.pdf
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    References listed on IDEAS

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    1. David R. Agrawal & William F. Fox, 2017. "Taxes in an e-commerce generation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(5), pages 903-926, September.
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    More about this item

    Keywords

    sales tax avoidance; destination-based taxation; cross-border shopping;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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