This study examines how investors, analysts, and firms respond to changes in sales tax obligations for e-commerce firms. Previous research finds that e-retailers have a competitive advantage over their brick-and-mortar counterparts due to their ability to avoid collecting sales taxes. Using the Supreme Court of the United States (The Court) decision in South Dakota v. Wayfair, Inc., 585 U.S.__ (2011) (Wayfair) as a setting, I examine investor and analyst reactions to, and corporate location decisions following, the broadening of state nexus rules for interstate commerce. I find that investors and analysts responded negatively to the announcement that The Court would hear the Wayfair case and to the release of the ruling, as evidenced by negative mean cumulative abnormal returns and downward revenue forecast revisions, respectively. These results are consistent with capital market participants perceiving increased sales tax obligations as being detrimental to e-commerce firms. Next, I investigate how e-commerce firms respond to increased sales tax obligations by examining their location decision-making in the wake of Wayfair. I find that e-commerce firms are more likely to establish locations in new states with sales taxes after Wayfair. In cross-sectional analysis, I find that my results are primarily driven by retail, wholesale, and service firms. I also find evidence that e-commerce firms are more likely to establish locations in states with high populations after Wayfair.
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