Tax sensitivity and home state preferences in internet purchasing

Science Foundation (SES-0219205, SES-0550897) for financial support. Data on sales of memory modules are used to explore several aspects of e-retail demand. Aggregate sales are examined in state-level regressions. Discrete choice techniques are used to examine (incomplete) hourly sales data from a price-comparison site. There is a strong relationship between e-retail sales to a given state and sales tax rates that apply to purchases from offline retailers. This suggests that there is substantial substitution between online and offline retail, and tax avoidance may be an important contributor to e-retail activity. Geography matters in two ways: consumers prefer purchasing from firms in nearby states to benefit from faster shipping times; and appear to have a separate preference for buying from in-state firms.