Sales Tax Loss in Online Sales May Not be All It's Cracked up to be

A new analysis by the Direct Marketing Association (DMA) points out flaws in the theory that states are losing billions of dollars each year due to the loss of sales tax on Internet sales. The analysis, based on data provided by the U.S. Department of Commerce, suggests that states are losing only slightly more than 1/10th the amount of sales tax they think they are losing.

While states claimed they lost as much as $13 billion in 2001 due to uncollected sales tax on Internet sales, the actual amount lost was closer to $1.9 billion according to the DMA survey.

The discrepancy, according to the DMA, results from flawed assumptions made during the recent Internet boom years. The study points out that there was a rush to shop on the Internet when the service first became available and many vendors were offering their wares online. Many of those vendors have ceased or decreased business now that the dot-com frenzy has subsided.

Another misconception occurred in the definition of e-commerce. The DMA suggests that analysts misconstrued much e-commerce activity as new business as opposed to existing business being conducted in a new environment.

"The analysis of Internet economic activity in America that we released today demonstrates without a doubt that there is - despite what a lot of state politicians are claiming - no pot of gold for the states in creating new burdens for remote retailers," said H. Robert Weintzen, president and CEO of the DMA.

Mr. Weintzen went on to suggest that companies would be loath to embrace the Streamlined Sales Tax Project that is being organized by several states. "Some estimates suggest that the yet-to-be-developed software for almost every business in America to manage its cumbersome obligations to 7,600 taxing jurisdictions could cost $25,000 per license and $60,000 for set up. Moreover, most businesses would have to create departments and hire staff in order to comply with all of the states tax codes and rules. The states are simply asking for too much from businesses who are trying to weather today's economic doldrums."

Related article:
Streamlined State Sales Tax Project at Core of Corporate Concerns

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