Until 2012, California, Pennsylvania, and Texas required firms to collect sales taxes for online sales only if the chain had a physical presence (a “brick” store as opposed to a “click” store) in those states. Thus, those states collected taxes on Best Buy’s online sales, because it had stores in each of those states,but they did not collect taxes from Amazon.com because it did not have physical locations in those states. Starting in 2012, Amazon had to pay taxes in these states. According to Baugh et al. (2015), consumers living in states that collected sales tax during checkout reduced Amazon purchases by 11%. After the tax was imposed on Amazon, Best Buy had a 4% to 6% increase in its online sales in those states relative to the rest of the chain (http://www.bizjournals. com/twincities/news/2013/01/11/best-buys-onlinesales- up-in-states.html). Use an indifference curve– budget line diagram to show why Best Buy’s sales rose after taxes were imposed on Amazon. (Start by drawing a typical consumer’s indifference curve between buying a good from Amazon or from Best Buy.)
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