Internet purchases, cross-border shopping, and sales taxes

Using data from the Current Population Survey for 1997and2001, we estimate the probability that a consumer engages in online shopping. We use variation in sales-tax rates by county to identify the effects of the sales-tax rate in the home county and adjacent counties. We also control for the sales-tax base. The estimates are consistent with the interpretation that consumers use Internet shopping to avoid sales taxes. In addition, consumers who live adjacent to counties with lower sales-tax rates are less likely to shop via the Internet, all else equal. We interpret this as evidence of cross-border shopping.