The sales and use tax revenue is shrinking in Minnesota heightening allegations and fear amongst state officials that emerging technology, especially electronic commerce, may be the cause. The problem is sales and use tax complexity of electronic commerce in Minnesota. The purpose of the proposed non-experimental quantitative study was to determine the probable relationship between electronic commerce and sales and use tax revenue in Minnesota. Thirteen different NAICS categories were examined from 2003 to 2009. The data was for taxpayers that filed non-zero sales and use tax returns in Minnesota, had web related words in their names and were presumed to engage in internet commerce. A total of 67 observations were examined. E-commerce, sales, and use tax values were examined for each observation. E-commerce data was measured at the national level, and was thus scaled down to be state-level data by 2% based on the population of Minnesota in relation to the population of the United States. The sales and use tax statistical data was obtained from the Tax Research Division, Minnesota Department of Revenue. Statistical data on online sales was obtained from the U.S. Census Bureau. Because linearity assumptions were not met curve estimation were run using logarithmic, quadratic, cubic, and exponential relationships between scaled e- commerce and sales tax. The results of the logarithmic relationship were not significant, F (1, 65) = 1.22, p = .273. The results of the quadratic model were also not significant, F (2, 64) = 2.79, p = .069. The results of the cubic model were not significant, F (3, 63) = 1.85, p = .147. Lastly, the results of the exponential model were significant, F (1, 65) = 14.89, p < .001. This suggests that e-commerce accounted for (R2) 19% of the variance in tax. Future research recommendations include determining the other 81% of the total variation; impact of tax zappers; the moderating variables not included in this research; reduce general sales tax rate from 6.875% to 5% and expand the tax base to include more services and goods; and the dynamic capabilities in sales and use tax reforms.
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