The economic impact of electronic commerce taxation

Retailing using the Internet has increased sharply over the last several years. Since goods purchased online in the United States are largely not taxed, state and local municipalities are concerned that increasing e-commerce sales will substantially lower their sales tax revenues. Those who argue against taxing e-commerce assert that its introduction would do irreparable harm to the growth of the Internet as consumers return to main-street shops. Those favoring a tax cite concerns of lower state government revenues due to increasing e-commerce sales, the resulting decrease in public good provision, as well as issues regarding equity. This dissertation explores these issues.; Chapter 1 presents an overview of the thesis and a discussion of the issues. Chapter 2 provides background material and a literature review.; Chapter 3 introduces a non-cooperative tax competition model in which consumers can shop in either conventional stores or online. This model describes the emergence of e-commerce over the past several years. A decrease in the fixed cost of online shopping relative to income leads to sustained e-commerce. It also provides a framework in which potential revenue losses can be explored. Tax rates and bases are both lower with the participation of the Internet region, making lower revenues inevitable when Internet shopping is allowed. It also includes an analysis of equity issues by allowing consumer incomes to vary.; Chapter 4 uses a dynamic, general equilibrium framework to investigate how a tax on electronic commerce might impact the growth of the Internet sector. Using various projections of e-commerce over the next decade, this chapter examines the impact of a 6% sales tax in the electronic sector on the growth of e-commerce sales. The potential revenues raised by enforcement of a use tax are also examined.; Chapter 5 uses computational techniques to measure the tax revenue ramifications of e-commerce. IMPLAN data for Colorado and state tax data provide detailed information regarding state and local sales taxes. The impact of increasing e-commerce sales on state and local tax revenue is determined, both under the status quo and with enforcement of use taxes. Equal yield revenue replacement options are also explored.