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PrintLocal Governments To Lose $13.3 Billion From E-Commerce in 2001
By David Hansen, CCH Washington Staff Writer
Although consumers and businesses may be enjoying the benefits of a tax-free Internet, the state and local governments that serve them are having a harder time making ends meet in the face of declining tax receipts. Meanwhile, federal lawmakers in Washington are considering an extension of the moratorium on Internet taxes, which is currently set to expire on October 21, 2001.
Lost Revenue
State and local governments will lose $13.3 billion this year--2 percent of all state tax revenue--because of untaxed e-commerce purchases, according to a study released October 2 by the Institute for State Studies (ISS).
Moreover, as e-commerce grows, projected losses will rise to $45.2 billion in 2006 and $54.8 billion in 2011, predicted the study, entitled "State and Local Sales Tax Revenue Losses from E-Commerce: Updated Estimates."
The 2001 projection is 41 percent larger than an earlier estimate of $9.4 billion made in April 2000 by the same researchers, says ISS.
An increase in e-commerce transactions made between businesses is the primary cause for the shortfall, according to the ISS press release. Business-to-business transactions account for 75 percent of the revenue loss, said Donald Bruce, who co-wrote the study.
The losses are part of a trend toward declining sales tax revenues for local governments, says the report. Other causes are a shift toward an economy based on services, which are untaxed, and legislated exemptions from sales taxes.
To recoup the lost revenue, states would need a sales tax increase between 0.83 and 1.73 percentage points by 2011, says co-author William F. Fox, a University of Tennessee professor involved in the study.
The University of Tennessee's Center for Business and Research conducted the study, which is available online at www.statestudies.org. The Institute for State Studies identifies itself as a nonprofit center for public policy research based at Western Governors University in Salt Lake City, Utah. It focuses on public policy/governance issues created by new technology, advancing competency-based measurement and certification in education, and increasing speed while decreasing cost of environmental progress.
Internet Tax Freedom Act
Also on October 2, Senators Ron Wyden (D-Ore.) and John McCain (R-Ariz.) announced that they plan to introduce legislation, along with Senator Patrick Leahy (D-Vt.) to extend for two years the Internet Tax Freedom Act (ITFA) moratorium, currently set to expire on October 21, 2001. They said that conversations continue with Senators Byron Dorgan (D-N.D.), Ernest Hollings, (D-S.C.) and John Kerry (D-Mass.), with whom no agreement has yet been reached.
According to a draft of the bill that Senator Wyden intends to introduce, the moratorium on state and local taxes on Internet access and on multiple or discriminatory taxes on electronic commerce would be extended until October 21, 2003. The bill would leave unchanged the current grandfather provision permitting taxes on Internet access imposed prior to October 1, 1998.
The bill would also encourage state governments and interested business organizations to expedite efforts to develop a streamlined plan to protect state revenues affected by Internet use.
