Remote Tax Authority

Historically, firms were primarily taxed in jurisdictions where they had a physical presence. Increasingly, firms find themselves subject to taxes in jurisdictions where they have customers, but no physical presence. Despite now having legal authority to tax remote firms, many jurisdictions are still struggling to understand the determinants of remote taxpayer compliance and to effectively encourage compliance. We partner with the Texas tax authority to conduct a randomized field experiment that targets out-of-state firms’ sales tax filings. Using a multi-version letter campaign, we find that all types of correspondence from the tax authority increase compliance among out-of-state firms, although the effects appear to be short-lived. Compared to in-state firms receiving similar letters, out-of-state firms are more sensitive to the letters despite the tax authority’s limited enforcement capabilities and other challenges of the remote setting. Collectively, our results suggest that remote tax authority outreach is most effective when it simply increases the salience of firms’ tax obligations. Our study on the interplay between taxpayers and a remote tax authority sheds light on a new and increasingly relevant dimension of taxpayer behavior and informs agencies tasked with administering new tax laws remotely