The "Amazon Tax": Empirical Evidence from Amazon and Main Street Retailers

Online retailers have gained a total price advantage over brick-and-mortar retailers since the formers generally are not required to collect sales tax. Recently, several states have implemented laws requiring that Amazon collect sales tax during checkout. Using transaction-level data, we document that households living in these states reduce Amazon purchases by 11%, implying an elasticity of –1.5. The effect is more pronounced for large purchases (e.g., ≥ $250), for which we estimate a reduction of 25% in purchases and an elasticity of –3.5. We find some weak evidence of substitution of the lost purchases towards other online and brick-and-mortar retailers.