Internet Commerce, Tax Sensitivity, and the Generation Gap

This paper uses two major surveys of Internet users in late 1997 and late 1998 to examine the sensitivity of Internet commerce to tax rates. Earlier work has suggested that Internet sales are highly sensitive to local tax rates. This paper documents that new users in both samples show little sensitivity to tax rates. Overall sensitivities to tax rates are not falling, however, despite the rapidly increasing numbers of new users, because as new users (particularly young ones) gain experience, their tax sensitivity appears to rise substantially. Internet commerce as a whole continues to be highly sensitive to tax rates and would fall significantly if existing sales taxes were enforced online.