Driving Customers Out of State

When will states catch up to the Internet age? Maybe it will take generational replacement before state and local politicians get it.

Case in point: Many online purchases are free of state sales tax if the seller is physically located outside the state. A National Bureau of Economic Research study measured how much this tax-free incentive affects buying decisions, and it's considerable. Every 1-percentage point increase in a state's sales tax boosts online purchases by 2 percent and shifts 3 to 4 percent of online purchases from in-state to out-of-state retailers.

So much for small-business boosterism by state and local politicians. Until they address this issue, they are driving customers out of state.

Source: National Bureau of Economic Research, "Sales Taxes and Internet Commerce," NBER Working Paper 18018 ($5)