Cross-border Shopping in a post-Wayfair World: Evidence from foot-traffic data

• In Event: Tax Administration, Compliance, and Mobility

Abstract

The sales tax is the second-largest source of revenue for state and local governments behind only the property tax. It is best for the sales tax to have a large base and a low rate. However, the size of the sales tax base has eroded over time with the rise of tax-exempt online shopping. The 2018 decision in Wayfair v. South Dakota allowed states to require that firms collect and remit the sales tax based on economic presence rather than physical presence. This change in remittance rules for online purchases removed the internet tax haven, but consumers are still able to lessen their tax burden by shopping across state and local borders. In this paper, I use foot-traffic data to examine how changes in sales tax remittance rules have affected consumer behavior. Using a staggered difference-in-difference framework, I compare visits to retail locations between shoppers from higher-tax jurisdictions and same- or lower-tax jurisdictions before and after economic nexus in the higher-tax jurisdiction. Preliminary results suggest that these changes have contributed to an increase in cross-border shopping, particularly along borders where tax differentials are highest. Although economic nexus increases the size of the tax base by removing a tax haven, the existence of tax differentials across borders likely continues to be a method of tax avoidance.

Author

• Alannah Shute, North Carolina General Assembly