Less Online Buying Cuts States' Loss Estimates [bookmark for when state govs demand more sales tax]

Reuters ^ | July 15, 2004 | Kristin Roberts

[John Jorsett]

WASHINGTON (Reuters) - State and local governments in the United States may not lose as much money as they previously thought when Internet retailers fail to collect sales tax, according to a new University of Tennessee study released on Thursday.

Online shopping and electronic commerce have not been as robust as anticipated years ago, leading researchers, hired by two national groups representing state officials, to lower their estimate of sales tax revenue losses by $26 billion in 2006.

"The experience of the last several years indicated that e-commerce has been a less robust channel for transacting goods and services than was anticipated when we prepared earlier estimates," said the report, written by William Fox, director of the university's Center for Business and Economic Research.

The report was commissioned by the National Governors Association and National Conference of State Legislatures, two groups that support an effort among states to simplify their sales tax structures in the hope that Congress will allow them to collect taxes on out-of-state Internet sales.

Those groups were quick to say that revenue losses are still substantial for state governments, many of which are struggling to emerge from years of economic weakness.

"It's still significant because it's still in the billions of dollars," said Neal Osten, director for communications and interstate commerce at the National Conference of State Legislatures.

States that do not have an income tax, such as Florida and Tennessee, are particularly vulnerable to weak sales tax collections because they depend on those levies to run state operations. In those states, sales taxes can account for well more than half of all revenue.

According to the report, state and local governments lost out on $15.5 billion in revenue in 2003 when sales taxes were not collected on Internet sales.

The revenue loss is expected to reach $21.5 billion by 2008 as states are unable to collect sales tax on $329.2 billion in taxable transactions, the study said.

Those are reduced estimates, however. The university's report from 2001 pegged 2006 revenue losses at $45.2 billion. Now, researchers see 2006 losses of $19.2 billion.

The estimates are based on forecasts of electronic commerce transactions from Forrester Research.

[Always Right]

Besides, many of the retailers that have stores nationwide already do collect sales tax on purchases.