Remote tax authority

Abstract

Tax enforcement and compliance are critical features of any tax system. One way that prior studies examine these topics is by measuring taxpayer responses to different types of letters from a tax authority. We extend this research by focusing on ‘remote firms’ – firms with no physical presence in the tax authority's jurisdiction – and examining sales tax compliance. Specifically, we partner with the Texas Comptroller's office to conduct a randomized field experiment that examines whether and why firms comply with remote tax authority. Using a sample of remote firms with a recent history of late filing, we find that tax authority correspondence increases the average reported sales tax base by 105 percent and tax payments by $3,711, although the effects are short-lived. Our evidence suggests that the effect is driven by increased salience of firms' tax obligations. Our study offers key insights given the growth in cross-border transactions and remote taxation.