The “Amazon Tax”: Empirical Evidence from Amazon and Main Street Retailers

Online retailers have maintained a price advantage over brick-and-mortar retailers since they were not required to collect sales tax. Recently, several states have required that the online retailer Amazon collect sales tax during checkout. Using transaction-level data, we document that households living in these states reduce Amazon purchases by 8% after sales taxes were implemented, implying an elasticity of –1.1. The effect is more pronounced for large purchases, for which we estimate a reduction of 11% in purchases and an elasticity of –1.5. Studying competitors in the electronics field, we detect substitution of the lost purchases towards competing retailers.