This paper examines the size and composition of the sales and use tax gap in Minnesota. The first segment of this thesis estimates the gap primarily attributed to business-to-consumer sales using data on remote sales collected by the U.S. Census Bureau. Business-to-consumer sales are primarily sales to individuals, while business-tobusiness sales are primarily sales to firms. We find…The second segment of the paper examines unremitted sales and use tax, primarily attributed to business-to-business sales, using data from audits conducted by the Minnesota Department of Revenue. It is important to note that while e-commerce does play a significant role in the underreporting of use tax, the sales tax gap is largely comprised of noncompliance unrelated to e-commerce. While capturing lost tax revenue to e-commerce will significantly decrease the size of the use tax gap, a sales tax gap will persist. We find that, after controlling for audit selection, the estimated sales tax gap to be between $263 million to $1,039 million dollars each year. The use tax gap is somewhere between $261.3 million dollars and $400.3 million dollars. We also find that find larger firms are more likely to be audited, but that they are more likely to yield a no-change assessment, indicating that compliance increases as firm size increases. However, the size of audit assessments increase as tax liability increases, which likely explains why audit rates increase as firm size increases. We also find that firms with out of state addresses are less likely to be audited but are more likely to be noncompliant. Finally, from our analysis of the predicted magnitude of noncompliance, we can conclude that, after controlling for firm size and audit selection, the industries most likely to yield high use tax audit assessments are firms in the Mining and Utilities and Finance & Insurance industries. Firms most likely to yield high sales tax audit assessments are firms in the Information industry. Finally, we examine ways Minnesota may implement new tax policy to mitigate further erosion of the sales tax base.