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Report: $525M in E-tail Sales Tax Not Collected in 1999

By Mary Hillebrand E-Commerce Times ECT News Network
Feb 25, 2000 12:00 AM PT

The Internet tax debate was injected with a measure of reality this week as Forrester Research, Inc. claimed that local and state governments in the United States passed up $525 million (US$) in 1999 tax revenues from Internet sales.

Report: $525M in E-tail Sales Tax Not Collected in 1999

The market research firm estimated that nearly $13 billion in taxable retail goods were sold over the Internet in 1999, but sales taxes were collected on only 20 percent of that amount.

"If left as is, taxation issues will only get worse as online retail sales grow to $184 billion in 2004," said James McQuivey, research director of Forrester's Technographics Data & Analysis.

Biggest States See Biggest Losses

The five U.S. states with the highest populations saw the greatest losses from uncollected Internet sales taxes, Forrester said.

California, for example, lost a potential $73.8 million in sales tax revenues last year, and Texas lost $51.9 million, the firm estimated. Meanwhile, Illinois took in $32.6 million less than it could have, Florida lost out on $30.3 million, and New York missed out on $26.6 million.

The state breakdown provides further ammunition to state governors, who have already criticized the Clinton administration's support of a moratorium on Internet taxes. Forrester is predicting that the states "will not relinquish potential revenue from tax dollars to retailers and consumers" as this debate heats up further.

Forrester Takes a Stance

Though it usually bills itself as an unbiased third-party research firm, Forrester is taking a clear stance on the question of Internet taxation.

"For several reasons, Forrester believes that Internet, catalog, and brick-and-mortar sales should all be taxed the same -- based upon a buyer's physical location," said Steven J. Kafka, an analyst in Forrester's eBusiness Trade Research division. "New technology will enable companies to easily collect taxes across multiple locations. Retail taxes won't keep consumers from shopping online because they seek convenience, selection and added services -- not a tax break."

Forrester reported that only 22 percent of the 8,900 online consumers it surveyed said they check different Internet retail sites to avoid paying sales taxes. Far more shoppers in the survey said that saving shipping charges is more important than avoiding taxes, the research firm claimed.

New Effort

The Internet tax study is part of a new effort from Forrester to follow the Internet tax issue more closely. The researcher said it plans to study taxation, e-commerce regulation, universal access to online services, and emerging technology for online voting.

"As the Internet and e-commerce become key contributors to the vitality of world economies, businesses, politicians, and government administrators must understand the role of technology and the Internet in shaping government, business, and society," Forrester says.

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