Aside from the death of an occasional big box retailer -- Borders and Circuit City, we knew thee well -- one of the bigger downsides to rise of online shopping has been its impact on state budgets. Thanks to a 1992 Supreme Court decision, web merchants don't have to pay sales tax in states where they don't have a physical presence. This exemption, while fabulous for consumers, may be denying states billions of dollars each year in much needed revenue -- not to mention making it even tougher for brick and mortar stores to compete.
There's a bill sitting in Congress that would rectify this situation. It would make it possible for states to start collecting all of the sales tax they're currently missing out on, as long as they instituted a few basic procedures to simplify the process. It's a pretty plainly sensible piece of legislation that appears to be accumulating some substantial bipartisan support. But all of this begs the question: If sales tax comes to the web, will it drive shoppers back offline?
A new study from a group of Stanford researchers is offering some timely answers. Their working paper, out this week on the National Bureau of Economic Research, looks at how sensitive online retail is to tax changes by tracking the behavior of eBay users. Why just eBay? With more than $30 billion in revenue, the company simply does an enormous amount of business, and the paper's author's believe that whatever happens on its servers can probably tell us something about the habits of online shoppers as a whole. The site also allows users to choose between sellers located all over the country. If someone in high-tax Louisville, Kentucky, is looking for a good deal on, say, Tide, they can easily look for a merchant out of state. That ability to choose is key to determining how shoppers react do different tax rates.