Although state officials admit lost sales tax revenue from online purchases will not break the bank, most agree its money needed and that those losses will grow with each year. Online retailers are only required to collect and remit sales tax to a taxing district where that retailer has a physical presence. Consumers are required to declare out-of-state purchases on income tax forms, but few do.
The National Governors’ Association issued a report citing a University of Tennessee study that showed that that state will lose $10.8 billion in uncollected taxes in 2003. It also estimates that California will lose $7.5 billion, Texas will lose $932 million, and Florida will lose $754 million. Diane Hardt, tax adminstrator with the Wisconsin Department of Revenue says that state will likely lose $20 million this year in uncollected sales tax. Most of that, she says, comes from mail-order sales, which are bound by the same out-of-state tax laws as do Internet sales. Wisconsin residents purchase about $120 million annually from out-of-state companies, but only $20 million of that comes from e-commerce, she says. However, as Internet shopping’s popularity grows, so too will the amount of uncollected tax. In a state that collects $3 billion per year in sales tax, $20 million may not seem like much, she says, but that is money that could be spent on education or health care.
About 30 states are participating in the Streamline State Sales Tax Project, in which the states are trying to come to an agreement on how to consistently apply sales tax across the 7,500 taxing districts in the U.S. If the project is successful, the hope is Congress will be forced to change the tax laws to force retailers to collect and remit sales tax based on the where the purchase originated, not where the retailer has a physical presence. Experts do not think such agreements will be ready before 2005.