Use tax administration and revenue production in the states

Abstract

AbstractUse taxes are utilized by states to discourage taxpayers from engaging in sales tax avoidance via shopping in lower tax states. Enforcement of this tax has long been difficult, as demonstrated in the case of South Dakota v. Wayfair, Inc. (2018). States have instead relied on different administration and tax structures to generate revenues. We contribute to the limited existing use tax literature by studying a panel of use tax revenues collected from 25 states, as well as use tax collection methods states implement for individual and business taxpayers. States are best at enforcing the use tax where they can rely on complementary administrative tax collection systems, such as in business‐to‐business transactions. They will likely struggle to realize improved use tax compliance for household consumption even in the wake of the Wayfair ruling.