Internet Retail Demand: Taxes, Geography, and Online-Offline Competition

Competition Policy and Antitrust, Networks, the Internet, and Cloud Computing, Internet and Search and Advertising

Article Snapshot


Glenn Ellison and Sarah Fisher Ellison


NBER Working Paper No. 12242, 2006


This paper looks at how state sales taxes affect consumer sales online.

Policy Relevance

How sales taxes apply to online and offline sales strongly affects online sales.

Main Points

  • Data from the sale of computer memory parts shows that higher state sales taxes on offline sales increase non-taxed online sales of parts. Online sales would decrease about 30% if offline sales were not taxed.

  • One might argue that online sales would therefore decrease if online sales were taxed.

  • It is clear that online and offline sellers compete with one another.

  • Consumers sometimes prefer online sellers located in the same state, though this may result in taxes being charged. Some data shows that customers prefer shorter shipping times, but results are mixed.

  • Consumers seem to pay less attention to sales tax rates than to price changes.

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