DMA: Uncollected E-commerce Tax Figures Inflated

Projected figures of uncollected sales tax from e-commerce and other remote sales have been vastly overstated. That’s the charge made by Direct Marketing Association senior economist Peter Johnson in a presentation here on March 13.

States looking to overturn laws governing out-of-state sales tax have been quoting two University of Tennessee studies that used projections from Forrester Research to estimate that uncollected sales tax from e-commerce and remote sales would be $13 billion in 2001 and would rise to $55 billion by 2011.

But Johnson said that his new report, which relies on survey data on the size and growth rate of e-commerce as measured by the U.S. Census Bureau, has considerably lower forecasts. Johnson’s study shows that for 2001, uncollected sales tax from e-commerce amounted to about $1.9 billion. What’s more, he projects that uncollected sales tax in 2011 “likely won’t exceed $4.5 billion”—less than 10% of the amount the University of Tennessee study projects.

“Given these calculations,” Johnson asked in his presentation, “is changing the definition of nexus the fairest and most efficient way to recoup the remaining pool of uncollected use taxes?” He went on to contend that e-commerce transactions aren’t “creating a massive leak in state coffers that could only be stanched by changing the definition of nexus.” Under current law, a state can collect sales taxes only from companies that have nexus, or a physical presence such as a store or headquarters, in the state.

Johnson and the DMA urge states to consider alternative means of collecting use taxes. For instance, Johnson noted how the state of Kentucky raised $12 million in self-reported use taxes from residents by making it a line on the state income tax form.

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