If online transactions are tax free, increased online shopping may lower tax rates as jurisdictions seek to reduce tax avoidance; but, if online firms remit taxes, online sales may put upward pressure on tax rates because internet sales help enforce destination-based taxes. I find that higher internet penetration generally results in lower municipal tax rates but raises tax rates in some jurisdictions. The latter effect emerges in states where many online vendors remit taxes. A 1 standard deviation increase in internet penetration lowers local sales taxes in large municipalities by 0.15 percentage points, or 16 percent of the average rate.
Agrawal, David R.
"The Internet as a Tax Haven?"
American Economic Journal: Economic Policy,
Business Taxes and Subsidies including sales and value-added (VAT)
Tax Evasion and Avoidance
State and Local Taxation, Subsidies, and Revenue
Retail and Wholesale Trade; e-Commerce
Finance in Urban and Rural Economies