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

You may like these other stories...

OECD calls for coordinated fight against corporate tax avoidanceDavid Jolly of the New York Times reported that dozens of countries with the most advanced economies have agreed on principles for concrete action to prevent...
AgFeed agrees to pay $18 million to settle SEC accounting fraud caseMichael Rapoport of the Wall Street Journal reported on Monday that AgFeed Industries Inc. has agreed to pay $18 million to settle US Securities and...
Hertz and Icahn make peaceThere won’t be any nasty, protracted proxy battle between Hertz Global Holdings and activist investor Carl Icahn. The rental car chain agreed last Thursday to give Icahn – who has...

Already a member? log in here.

Upcoming CPE Webinars

Sep 18
In this course, Amber Setter will shine the light on different types of leadership behavior- an integral part of everyone's career.
Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.