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Main Streets all across America are looking to Washington to close a loophole that gives online-only retailers an unfair advantage over their Main Street competitors.
This unfair advantage costs local communities jobs and tax revenue and creates significant unfairness in the marketplace for businesses and consumers alike.
NCSL advocates for passage of e-fairness legislation because it levels the playing field for local businesses, which are the economic backbones of our communities that provide employment and tax revenue to fund vital services. As sales taxes account for over a third of revenues for most states, including over half of tax collections for six states, the inability to collect taxes that are legally owed constrains states’ options to reform their tax code elsewhere. This includes lowering tax rates or requiring states to raise certain tax rates to fund necessary government services.
How Did We Get Here?
Two Supreme Court rulings (Bellas Hess and Quill) cite concern that collecting sales tax for multiple states would be too difficult. As it is now, the Supreme Court ruled that states can only require retailers to collect state taxes in territories where they have offices or stores.
How Is it Affecting States?
States lost an estimated $23.3 billion in 2012 from being prohibited from collecting sales tax from online and catalog purchases. With nearly every state still facing budget shortfalls, this revenue could help fund police, school teachers and other much-needed programs.
According to NCSL’s survey of state legislative fiscal officers, between FY 2008-2013, states closed a cumulative $527.7 billion budget gap, primarily through program reductions. Raising taxes in the sluggish economy remains an unviable option for most states, so closing the loophole on sales tax collection could provide states with the option of using some of the additional revenue to offset federal spending reductions.
States Are Taking Action
In the absence of federal action, states have sought solutions to the remote sales tax loophole in order to protect their budgets as well as their main street retailers. Over half the states have enacted legislation to respond to the concerns raised in the Supreme Court decisions to remove the burden and cost on out of state sellers to collect and remit sales taxes, a number of states have enacted affiliate nexus or “Amazon” laws, some have increased reporting requirements on retailers, and others have tried other mechanisms to collect the taxes they are already owed. Unfortunately, state attempts alone will not solve the problem; it must be solved by Congress.
What’s Next
The U.S. Senate voted May 6, 2013 to approve the Marketplace Fairness Act (MFA), S. 743, by a vote of 69-27. The NCSL-supported legislation is now before the House of Representatives' Judiciary Committee for consideration. The MFA authorizes states that adhere to certain simplifications to require out-of-state retailers that have more than $1 million a year in out-of-state sales to collect and remit that state's sales taxes. The legislation also requires states to provide software to online retailers free of charge and removes any liability from the retailer should the software malfunction.
All state-by-state figures displayed on the map are in millions of dollars. To see specific state information, move your mouse over that particular state.
Sources: State budget gap data from NCSL's "State Budget Update: June 2008," "State Budget Update: November 2008," February 2009 "Update on State Budget Gaps: FY 2009 & FY 2010," "State Budget Update: November 2009" and the NCSL Fiscal Affairs program staff. Sales tax data from "State and Local Sales Tax Revenue Losses from E-Commerce Estimates as of April 2009" by Dr. Donald Bruce and Dr. William Fox, Center for Business and Economic Research, University of Tennessee.
*Alaska has no statewide sales tax, but some local jurisdictions collect sales tax.
Estimated Uncollected Use Tax From All Remote Sales in 2012
| |
Non-Electronic Business to Customer |
Non-electronic Business to Business |
Electronic Business to Business and Business to Customer |
Total |
| Alabama |
101,657,313 |
75,677,086 |
170,400,000 |
347,734,399 |
| Alaska |
880,149 |
655,832 |
1,500,000 |
3,035,981 |
| Arizona |
220,741,594 |
118,086,660 |
369,800,000 |
708,628,254 |
| Arkansas |
67,947,572 |
54,464,358 |
113,900,000 |
236,311,930 |
| California |
1,136,801,607 |
1,118,366,340 |
1,904,500,000 |
4,159,667,947 |
| Colorado |
103,065,552 |
76,798,022 |
172,700,000 |
352,563,574 |
| Connecticut |
38,022,475 |
50,544,930 |
63,800,000 |
152,367,405 |
| District of Columbia |
21,211,612 |
15,805,570 |
35,500,000 |
72,517,182 |
| Florida |
479,769,709 |
200,120,301 |
803,800,000 |
1,483,690,010 |
| Georgia |
244,857,701 |
182,452,688 |
410,300,000 |
837,610,389 |
| Hawaii |
35,822,100 |
26,692,395 |
60,000,000 |
122,514,495 |
| Idaho |
27,636,706 |
29,083,776 |
46,400,000 |
103,120,482 |
| Illinios |
302,507,519 |
249,542,069 |
506,800,000 |
1,058,849,588 |
| Indiana |
116,619,861 |
86,897,847 |
195,300,000 |
398,817,708 |
| Iowa |
52,897,008 |
39,415,552 |
88,700,000 |
181,012,560 |
| Kansas |
85,286,525 |
51,037,503 |
142,900,000 |
279,224,028 |
| Kentucky |
65,659,182 |
48,925,127 |
109,900,000 |
224,484,309 |
| Louisiana |
236,320,247 |
176,091,110 |
395,900,000 |
808,311,357 |
| Maine |
19,099,252 |
14,231,572 |
32,100,000 |
65,430,824 |
| Maryland |
109,930,722 |
81,913,518 |
184,100,000 |
375,944,240 |
| Massachusetts |
78,333,340 |
58,369,120 |
131,300,000 |
268,002,460 |
| Michigan |
84,494,390 |
62,959,949 |
141,500,000 |
288,954,339 |
| Minnesota |
140,471,923 |
79,447,327 |
235,300,000 |
455,219,250 |
| Mississippi |
80,533,715 |
87,852,645 |
134,900,000 |
303,286,360 |
| Missouri |
125,773,420 |
93,718,508 |
210,700,000 |
430,191,928 |
| Nebraska |
36,614,235 |
20,137,833 |
61,300,000 |
118,052,068 |
| Nevada |
100,865,178 |
75,158,440 |
168,900,000 |
344,923,618 |
| New Jersey |
120,844,580 |
90,045,845 |
202,500,000 |
413,390,425 |
| New Mexico |
71,908,246 |
53,581,540 |
120,500,000 |
245,989,786 |
| New York |
516,559,974 |
384,908,277 |
865,500,000 |
1,766,968,251 |
| North Carolina |
127,621,735 |
95,095,757 |
213,800,000 |
436,517,492 |
| North Dakota |
9,153,558 |
6,820,661 |
15,300,000 |
31,274,219 |
| Ohio |
183,775,298 |
136,937,891 |
307,900,000 |
628,613,189 |
| Oklahoma |
84,054,315 |
71,494,343 |
140,800,000 |
296,348,658 |
| Pennsylvania |
206,483,165 |
153,858,377 |
345,900,000 |
706,241,542 |
| Rhode Island |
17,338,952 |
24,097,506 |
29,000,000 |
70,436,458 |
| South Carolina |
74,372,666 |
55,417,872 |
124,500,000 |
254,290,538 |
| South Dakota |
17,779,027 |
13,247,822 |
29,800,000 |
60,826,849 |
| Tennessee |
245,209,761 |
92,471,128 |
410,800,000 |
748,480,889 |
| Texas |
519,552,484 |
387,138,109 |
870,400,000 |
1,777,090,593 |
| Utah |
52,808,993 |
39,349,968 |
88,500,000 |
180,658,961 |
| Vermont |
14,962,548 |
4,696,781 |
25,100,000 |
44,759,329 |
| Virginia |
123,573,045 |
92,078,926 |
207,000,000 |
422,651,971 |
| Washington |
168,284,660 |
90,784,044 |
281,900,000 |
540,968,704 |
| West Virginia |
30,189,141 |
22,495,065 |
50,600,000 |
103,284,206 |
| Wisconsin |
84,846,450 |
62,059,664 |
142,100,000 |
289,006,114 |
| Wyoming |
17,074,908 |
16,069,797 |
28,600,000 |
61,744,705 |
| Total |
6,800,214,113 |
5,067,095,451 |
11,392,700,000 |
23,260,009,564 |
Estimates from University of Tennessee Study
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