Analysts shrug off the sluggish implementation of e-commerce taxes
WASHINGTON – Slow implementation by some states of last June’s Supreme Court ruling that cleared the way for them to require sales tax collection by e-commerce retailers isn’t a threat to their credit strength, analysts said Monday.
Iowa, Louisiana, Nebraska and West Virginia will begin requiring collection in January, while California, Florida, Texas and New York are among the states expected to require it later in the year.
Texas has a draft regulation calling for e-commerce retailers with $500,000 or more of sales in the state to begin collection on Oct. 1, 2019 that may see changes by the State Legislature after it commences its 2019 session.
The Supreme Court's ruling in South Dakota v. Wayfair has slowly worked its way through the 45 states with statewide sales taxes. The high court struck down the 1992 physical presence standard set forth in an earlier case that exempted an out-of-state catalog retailer from collecting sales tax.
States did not report any significant changes to sales tax receipts through September, according to John Hicks, executive director of the National Association of State Budget Officers.
Analysts from S&P Global and Moody’s Investors Service said in interviews Monday this year’s healthy tax revenue collection by the states has lessened the pressure to quickly implement the ruling.
“There might be some technical hiccups that might make some of the revenues three months or six months late coming in, but we’re looking long-term particularly in this year of relatively good tax receipts,” David Hitchcock, S&P Global senior director for the U.S. states group, said in an interview.
Hitchcock said any delays in implementation by the states are not expected to have a credit rating impact.
Overall retail sales were up by 5.3% in the third quarter compared to a year ago, according to preliminary data from the Census Bureau.
“The brick and mortar side of retail is still the vast majority of all sales,” said Chandra Ghosal, vice president and senior analyst at Moody’s..
E-commerce is only about 10% of all sales although the Census Bureau reported it grew 14.5% in the third quarter compared to the year prior.
Ghosal said e-commerce sales tax collection matters the most in states that are heavily reliant on sales tax to fund state and local government.
Florida collected 77.9% of its general fund revenues from sales tax in 2017 followed by South Dakota at 60.6%, Tennessee at 59.8%, Texas at 55.5% and Washington at 51.5%, according to the National Association of State Budget Officers.
Even though Texas is delaying implementation of the court ruling, the state is rated triple-a stable by Moody’s.
And the Florida economy "is performing quite well,” Ghosal said.
The U.S. Government Accountability Office said in December 2017 that state and local governments could have gained an additional $8 billion to $13 billion in sales tax revenue that year if they were given authority to require sales tax collection from all remote sellers.
“This is about 2% to 4% of total 2016 state and local government general sales and gross receipts tax revenues,” GAO said.
Other groups have much higher estimates.
The National Conference of States Legislatures and the International Council of Shopping Centers estimated states and local governments lost $26 billion in tax revenue in 2015 from online retail sales.
The Marketplace Fairness Coalition of major brick-and-mortar retailers, local chambers of commerce and commercial real estate firms has estimated the lost sales tax revenue will grow to $33.9 billion this year.