Les Jones

E-commerce > Does Sales Tax Influence Online Shopping?

I've blogged about the results of AOL's Online Shopping Cities survey, which tracks online spending around the country. Nashville, Tennessee came out on top. The question no one seems to be asking is, why Nashville?

Nashville blogger and tax opponent Bill Hobbs noted that some of our representatives in the capital would probably want to use this latest information to justify taxing online sales. Tennessee government was in dire financial straits a few years ago, and the legislature very nearly passed a state income tax. After a bitter fight, the income tax proposal was dropped, and the sales tax raised 1%.

Hobbs gave me an idea. When you buy online, the Web site typically doesn't charge sales tax, unless they have a nexus in the state they're shipping to. Sales tax could be the reason some cities are on the list: their residents are trying to avoid state and local taxes.

I found sales tax data at The Sales Tax Clearinghouse, as shown in Table 1. The tax rates are a weighted average for the entire state that include county and city rates. So for instance, Los Angeles, San Diego and San Francisco are shown as having the same rate, though that's unlikely to be true. If anyone can point me to a free source of sales tax information by city, I'll amend the table to use city-specific data.

With the highest combined sales tax in the nation at 9.35%, it's no surprise that a Tennessee city tops the list. Some high sales tax states that didn't show up on the top 10: Texas (7.9%), Oklahoma (7.95%), and Louisiana (8.5%). I'm curious to find out if those states show up in the top 25, but so far I haven't been able to find AOL's complete data online, just abstracts and news reports.

Clearly, one disadvantage of a sales tax is defection: people will go to other states to avoid paying excessive taxes. This isn't just an online issue for Tennessee. It also influences decisions to use mail order, or to simply drive across the state line. Tennessee borders eight other states, all of which have lower sales tax, and two of the four largest cities (Memphis and Chattanooga) sit on the state line.

UPDATE: Chip Taylor points to this study by Austan Goolsbee. Goolsbee concludes that sales tax does encourage online shopping, and warns that applying sales tax to the Internet could reduce online spending by as much as 24 per cent.

Do you love to shop?  Have you ever considered online shopping? If you love the internet, why not do all of your shopping online? If you are on the hunt for the perfect bedroom furniture, or you are in need of the best electronics, we can help!  For the biggest selection of merchandise, at the most affordable prices, sign online and do your shopping today!