Experimental Evidence on the Efficacy of Current Approaches to Increase Use Tax Compliance
Advances in Accounting Behavioral Research
ISBN: 978-1-83867-346-8, eISBN: 978-1-83867-345-1
Publication date: 30 September 2019
Abstract
Purpose
Online retailers often lack nexus within a purchaser’s home state and do not collect sales tax at the point of sale. Consumers exacerbate the loss of tax revenue by typically not remitting the use tax on these purchases. To date, very little research addresses the effectiveness of methods to increase use tax compliance, and the need for more work is well documented in the literature.
Design
This study examines, in a controlled economics-based experiment, the effectiveness of current approaches to close the use tax gap. Participants are randomly assigned to one of three treatments to determine the extent to which they would voluntarily pay use tax on a purchase transaction. The experiment mimics the natural environment and measures the participants’ actual compliance with cash payouts.
Findings
We find individuals are significantly more likely to pay the use tax when given detailed information about their online purchases and the use tax obligation compared to only receiving a description of the use tax. We also find compliance is significantly higher when individuals have a separate state income tax line on which to report use tax liability.
Value
Unlike personal income tax compliance, consumers are more likely to evade use tax payments because taxing authorities are usually unable or unwilling to audit consumer purchases. This makes an examination of the effectiveness of reporting and collection methods worthwhile. This study measures use tax compliance based on actual consumer behavior with real economic consequences rather than taxpayer intentions, as reported in prior work. This is important because intentions and behavior are often different, especially in an economic setting. Finally, policymakers will benefit from an effectiveness-assessment of actual methods, rather than hypothetical and potentially unfeasible approaches, to try and increase use tax compliance.
Keywords
Acknowledgements
Acknowledgments
We gratefully acknowledge the helpful comments and suggestions received from Khondkar Karim, editor, and an anonymous reviewer. We also wish to thank the participants at the 2013 Behavioral Tax Research Symposium in Fairfax, Virginia, the 2014 AAA Southeast Regional Meeting in St Petersburg, Florida, and the 2014 AAA Annual Meeting in Atlanta, Georgia, for their ideas and recommendations. Finally, we express our gratitude to Cynthia Blanthorne for her valuable insight.
Citation
Howard, M.E., Seay, R.A. and Seay, R.A. (2019), "Experimental Evidence on the Efficacy of Current Approaches to Increase Use Tax Compliance", Advances in Accounting Behavioral Research (Advances in Accounting Behavioural Research, Vol. 22), Emerald Publishing Limited, Leeds, pp. 21-41. https://doi.org/10.1108/S1475-148820190000022003
Publisher
:Emerald Publishing Limited
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