WASHINGTON — State and local governments will lose at least $10.1 billion this year in tax revenue not collected on Internet transactions — a figure some experts believe is too low — while federal legislation that would grant states the authority to collect online sales taxes has stalled amid anti-tax sentiment.
The revenue loss estimate was published last week in a Congressional Research Service report entitled “State Taxation of Internet Transactions.” California is projected to lose $1.7 billion this calendar year; Texas and New York could lose about $700 million each, the report said.
The CRS report cites a two-year-old estimate on state revenue losses computed by researchers at the University of Tennessee who were looking at Census e-commerce data from 2006.
Since then shopping online has accelerated and has likely augmented the revenue loss to state and local governments.
The 2009 estimate is “dramatically lower” than an estimate based on updated e-commerce data, according to William Fox, a professor at Tennessee and a co-author of the 2009 study.
“E-commerce has grown faster than what we had forecast,” accelerating by “double-digits” quarter-over-quarter, he said. “Everything else being equal, we would have forecast a higher number today.”
State and local governments are worried the rising e-commerce trend “is gradually eroding their tax base,” the report said.
Nationally, states relied on sales taxes for about one-third of their tax revenues in 2008, according to the report. The proportion of sales tax as a percent of total tax revenue varies from state to state. Five states do not have a state sales tax while 18 states rely on a combination of state and local sales taxes for at least half of all revenue, the CRS report said, citing 2007 to 2008 Census data.
To stem the erosion of sales taxes losses, state and local governments have looked to Congress to grant them authority under the Constitution’s Commerce Clause to collect sales taxes on out-of-state retailers. Currently, states are legally barred from collecting a sales tax on vendors that have no physical presence, like a store, within the state.
Sen. Richard Durbin, D-Ill., in April rolled out a plan that would authorize states to collect online sales taxes. His proposed legislation has not been introduced as the senator has struggled to find Republican support for his effort, sources said Friday.
The National Governors Association and the National Conference of State Legislatures have advocated for the Durbin proposal as well as similar legislative efforts in pervious years.
A spokesperson for Durbin did not respond to requests for comment on Friday.
Meanwhile, states have tried to pass laws on their own that require online retailers like Amazon.com Inc. and eBay Inc. to pay taxes when they have a distribution center based in a state. Those efforts face political resistance from Democrats and Republicans over job creation and anti-tax supporters.
South Carolina last week passed a law exempting Amazon from collecting sales taxes if it maintains at least 1,500 jobs at a new distribution center. The exemption drew support from local Democrats who said the job gains outweighed the tax benefits.
In Texas last month, Republican Gov. Rick Perry vetoed a bill that would have required Amazon to collect sales taxes. But lawmakers inserted a similar provision into a broad fiscal bill this month. Last week, members of the Texas House voted against stripping the Amazon tax provision from the fiscal bill. “I urge lawmakers to remove the Internet sales tax language,” Perry said in a statement Thursday.
Perry “is so wrong on this issue,” said Scott Peterson, executive director of the Streamlined Sales Tax Governing Board Inc., which is a coalition of states that have agreed to simplify and synchronize sales tax laws.
By vetoing the Amazon law, Perry “shoots the entire [Texas] tax revenue structure in the foot,” Peterson said Friday, adding that the governor’s opposition to the Amazon law should not stop momentum for the Durbin legislation.
Perry has received support for his Amazon bill veto from the anti-tax group, Americans for Tax Reform, which is led by Grover Norquist. The group has argued state efforts to require online sales tax collection are unconstitutional. A spokesperson for the group did not respond to requests for comment Friday.
Amazon’s president CEO Jeffrey Bezos has previously indicated the company would support a streamlined sales tax law, sources said, but it is unclear where the company stands on the Durbin legislation. A spokesperson for Amazon did not return a call for comment on Friday.
