Private investment firm Comvest Partners acquires the financially troubled e-retailer, which filed for Chapter 11 bankruptcy protection in March.
There's a lot to see between the lines of studies that estimate uncollected sales tax figures.
While a study by the University of Tennessee projects that uncollected sales tax on web sales (both business-to-consumer and business-to-business) under current law will reach as much as $12.7 billion in 2012, another study backed by Internet businesses says the loss in sales tax revenue will reach only $4.7 billion.
Why the gap?
Forecasts often differ because of different models and data sets, but the wide gap between those two figures also reflects the split between proponents and opponents of a nationwide sales tax system: The University of Tennessee study was requested and backed financially by the SST Governing Board, which oversees the Streamlined Sales and Use Tax Agreement, and three store-centered retail industry organizations that support the sales tax effort to level the playing field with web-only retailers—the National Retail Federation, the International Council of Shopping Centers, and the National Association of Real Estate Investment Trusts.
The membership in NetChoice, which backed the alternate study, is comprised of web-only and catalog retailers and organizations steadfastly opposed to a new sales tax system. Its members include eBay Inc., Overstock.com Inc., the Electronic Retailing Association, and the Internet Alliance. The Internet Alliance includes groups such as the Direct Marketing Association as well as individual Internet businesses.
The NetChoice-supported report—written in February 2010 by Jeff Eisenach, managing director at business consultants Navigant Economics (formerly chairman of economics consultants Empiris, which Navigant acquired early this year) and an adjunct professor of law at George Mason University; and Robert Litan, senior fellow in economics at the Brookings Institution and vice president of policy and research at the Kauffman Foundation, an organization that promotes entrepreneurship in business—contends that the University of Tennessee study overestimates both uncollected tax revenue tied to B2B online sales and overall projected growth in online sales.
Eisenach and Litan note, for example, that the Tennessee study fails to consider the fact that broadband penetration in U.S. households is reaching a saturation point and no longer spurring growth in e-commerce as it once did, and that the study also fails to account for the fact that many B2B sales are considered “inputs to production” and not subject to sales tax.
The Tennessee study, which was written by university economics and business professors Donald Bruce, William Fox and LeAnn Luna, included detailed questions to states about how sales tax is charged against wholesale transactions as well as products sold as component parts in manufacturing. It forecasts e-commerce sales using data from the U.S. Census Bureau combined with projections from HIS Global Insights, an economic forecasting firm.
Tennessee’s study, completed in April 2009, is an updated version of an earlier independently produced study by professors Bruce and Fox that was not financially backed by either side of the sales tax debate. The SST Governing Board, having recognized the prior Tennessee study, in 2004, as unusually comprehensive among the tax studies conducted in most states, requested the university to update it to reflect more current e-commerce developments, Peterson says.
Two other university economics professors—James Alm of Georgia State University and Mikhail Melnik of Niagara University, who don’t receive support from outside parties with an interest in the sales tax issue—say in a June report published in the National Tax Journal that the Tennessee study offers the best example of estimated revenue lost from uncollected sales tax, noting that, among other things, it uses detailed state-by-state surveys of taxable e-commerce transactions.
The true amount of incremental tax collection that would arise under a new sales tax collection system, of course, should eventually surface if pending federal legislation authorizing states to mandate sales tax collection by Internet and catalog retailers becomes law. Until then, it’s good to look between the lines of the studies.