Tax Sensitivity and Home State Preferences in Internet Purchasing

Abstract

Data on memory modules sales are used to explore aspects of e-retail demand. Aggregate sales are examined in state-level regressions. Discrete choice techniques are used to examine (incomplete) hourly sales data from a price comparison site. We find a strong relationship between e-retail sales to a given state and sales tax rates that apply to purchases from offline retailers, suggesting substantial online-offline substitution and the importance of tax avoidance motives. Geography matters in two ways: consumers prefer purchasing from firms in nearby states and appear to have a separate preference for buying from in-state firms. (JEL D12, H25, H71, L81)