July 15, 2004
Two New Reports Show the Changing World of E-Commerce
Simplifying state sales and use taxes remains a top priority of
NGA and NCSL
WASHINGTON - Online sales topped $104 billion in 2003, a nearly 40
percent jump over the previous year, and yet state and local governments
lost an estimated $15.5 billion in revenue because states cannot
effectively collect sales and use taxes on e-commerce purchases, according
to a report commissioned by the National Governors Association (NGA) and
National Conference of State Legislatures (NCSL) and updated figures from
the University of Tennessee’s Center for Business and Economic Research.
The reports support those who are working to simplify state sales tax
systems and level the playing field for all retailers under the
Streamlined Sales and Use Tax Agreement (SSUTA). In recent years, NGA and
NCSL have spearheaded efforts to simplify and streamline the system
through the SSUTA, which would create one uniform system to administer and
collect remote sales taxes.
“These studies show how absolutely critical it is for states to
collectively simplify their antiquated sales tax laws,” said NGA Executive
Director Ray Scheppach. “To date, 42 states and the District of Columbia
have signed on to work towards a simplified tax system. Implementation of
the agreement would level the playing field between ‘remote’ sellers that
are not obligated to collect and remit sales taxes and Main Street
retailers, which must collect sales taxes.”
In the first report, “The Growth
of Multichannel Retailing,” Forrester Research found that established
“brick and mortar” stores, like Borders and Wal-Mart, are increasingly
selling their goods online, transforming the whole notion of retailing by
catering their business to tech-savvy consumers. Forrester credits today’s
e-commerce boom with traditional Main Street stores’ effective use of the
Internet rather than Web-only retailers like Pets.com. “With the exception
of online sellers Amazon.com and eBay,” the study says, “the majority of
online sales are by the same retailers that dominate offline sales.”
Internet sales at so-called “Multichannel” stores, such as Target and
Sears, grew almost 60 percent in 2002 and 32 percent last year, whereas
Web-based retailers grew only 13 percent in 2003. Thanks in part to the
continued expansion of broadband technologies in U.S. homes, Forrester
expects online retailing to grow annually at a rate of nearly 20 percent
in the next five years and estimates Americans will spend nearly $230
billion online in 2008, or 10 percent of the nation’s total retail sales.
"Recent Census data shows the sales tax is once again the dominant
revenue source for state government. This validates the need for
states to continue to simplify and streamline the current sales and use
tax systems,” said NCSL Executive Director William Pound.
“Corresponding action by Congress to give the states that streamline the
authority to require all remote sellers to collect those states’ sales and
use taxes, will close the revenue gap reported by the updated Fox
report.”
The second report, “State
and Local Sales Tax Revenue Losses from E-Commerce,” updates two
previous University of Tennessee studies in which researchers examined the
effects of e-commerce on state and local government revenues. The latest
report suggests that e-commerce has “been a less robust channel for
transacting goods and services than was anticipated when we prepared the
earlier estimates” but nonetheless found that “revenue erosion continues
to represent a significant loss to states and local government.”
According to the report, state and local governments lost between $15.5
and $16.1 billion in 2003 as states are unable collect sales taxes from
online sales. The trend is only supposed to increase, as the report
projects that 2008 revenue loss for state and local governments would
range between $21.5 billion and $33.7 billion, with the greatest losses
occurring in states that rely most heavily on the sales tax as a revenue
source.
Broken down, state governments stand to lose between $17.8 billion and
$27.8 billion in 2008, while local governments will lose between $3.7
billion and $5.8 billion that year, according to the University of
Tennessee study.
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