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Does Use Tax Evasion Provide a Competitive Advantage to E-Tailers?

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  • Jeffrey L. Hoopes
  • Jacob R. Thornock
  • Braden M. Williams

Abstract

Many online retail firms (e-tailers) do not collect sales tax from the majority of their customers. This practice provides these firms with 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. Following events that indicated an increased likelihood of federal sales tax legislation, we find negative abnormal stock returns for e-tail firms relative to traditional retail firms. We also find that analysts forecast a future reduction in sales revenue for e-tailers. These findings imply the existence of a competitive advantage for e-tailers that will potentially diminish with the enactment of federal sales tax legislation.

Suggested Citation

  • Jeffrey L. Hoopes & Jacob R. Thornock & Braden M. Williams, 2016. "Does Use Tax Evasion Provide a Competitive Advantage to E-Tailers?," National Tax Journal, National Tax Association;National Tax Journal, vol. 69(1), pages 133-168, March.
    • Handle: RePEc:ntj:journl:v:69:y:2016:i:1:p:133-168
    DOI: 10.17310/ntj.2016.1.05
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    Cited by:

    1. Anil Arya & Brian Mittendorf, 2018. "Bricks-and-Mortar Entry by Online Retailers in the Presence of Consumer Sales Taxes," Management Science, INFORMS, vol. 64(11), pages 5220-5233, November.
    2. Argilés-Bosch, Josep Mª & Ravenda, Diego & Garcia-Blandón, Josep, 2021. "E-commerce and labour tax avoidance," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 81(C).
    3. Argilés-Bosch, Josep M. & Somoza, Antonio & Ravenda, Diego & García-Blandón, Josep, 2020. "An empirical examination of the influence of e-commerce on tax avoidance in Europe," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 41(C).
    4. Klein, Daniel & Ludwig, Christopher A. & Spengel, Christoph, 2019. "Ring-fencing digital corporations: Investor reaction to the European Commission's digital tax proposals," ZEW Discussion Papers 19-050, ZEW - Leibniz Centre for European Economic Research.
    5. D.A. Artemenko & L.A.Aguzarova & F.S.Aguzarova & E.V. Porollo, 2017. "Causes of Tax Risks and Ways to Reduce Them," European Research Studies Journal, European Research Studies Journal, vol. 0(3B), pages 453-459.
    6. Belnap, Andrew & Welsch, Anthony & Williams, Braden, 2023. "Remote tax authority," Journal of Accounting and Economics, Elsevier, vol. 75(2).
    7. Olbert, Marcel & Spengel, Christoph, 2019. "Taxation in the digital economy: Recent policy developments and the question of value creation," ZEW Discussion Papers 19-010, ZEW - Leibniz Centre for European Economic Research.

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