Is Sales Tax Avoidance a Competitive Advantage?

• In Event: New Faculty/Doctoral Session II

Abstract

Many online retail firms (i.e., e-tailers) do not collect sales tax from the majority of their customers, providing these firms a potential competitive advantage over traditional retailers. We examine stock market returns and analysts’ sales forecast revisions surrounding federal legislative proposals, such as the Marketplace Fairness Act, that could erode this alleged competitive advantage for e-tailers. We find negative abnormal stock returns for e-tail firms relative to traditional retail firms, and find that analysts forecast a future reduction in sales revenue for e-tailers, following events that indicated an increased likelihood of federal sales tax legislation. These findings imply the existence of a competitive advantage for e-tailers, which advantage will potentially diminish with the enactment of federal sales tax legislation.

Authors

• Jeffrey Hoopes, Ohio State University

• Jacob Thornock, University of Washington-Seattle

• Braden Williams, University of Washington-Seattle