Online Shopping Can Redistribute Local Tax Revenue from Urban to Rural America

Exploiting reforms requiring online vendors to remit taxes on a destination basis and using the unprecedented shock to online shopping due to COVID-19, we examine the effect of e-commerce on the distribution of tax revenues across urban and rural jurisdictions. We assemble a high-frequency and nationally representative dataset of sales tax bases and revenues for counties and municipalities. The shift to online shopping results in revenue contractions in large jurisdictions but, contrary to the conventional wisdom, increases revenue growth in small jurisdictions. As e-commerce expands, although remittance rules enforcing taxes mute revenue losses in large jurisdictions with retail agglomerations, these policies also "redistribute" tax revenues from those jurisdictions towards smaller hometown jurisdictions. This finding highlights the distributional implications of firm-based remittance rules