DMA says on-line sales tax losses “wildly overstated”

The analysis suggests that potential uncollected revenue to the US states is about 85% less than prior studies suggest. The DMA's interest in revising these figures is to discourage Congress from passing new measures to enforce on-line sales taxes.

In 2001, the states reported that approximately $13 billion went uncollected due to their inability to force out-of-state retailers to act as their unpaid tax collectors. But according to the DMA, the total amount potentially uncollected was about $1.9 billion.

The DMA reports that "much-cited studies from the University of Tennessee erroneously relied on data from the internet boom years and made flawed assumptions about e-commerce that resulted in their vast over-estimates."

Factors resulting in artificially high estimates of potential tax revenues included dot.com era growth estimates of 38% annually, and the failure to note the decline of "pure-play" e-tailing in favour of bricks-and-clicks.

DMA president Robert Wientzen said:

"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."

Wientzen continued:

"It is important to note that the current system gives the states all necessary authority to collect sales and use taxes from their own citizens without an act of Congress. What the states now are seeking in Congress will lead to burdensome costs and administrative complications that, ultimately, will be shouldered by consumers at a time when the economy can least afford them."

A Streamlined Sales Tax Agreement is proposed by 35 states and the District of Columbia to simplify state sales tax systems.

At present, the Agreement is voluntary and e-tailers are required to charge sales tax only if the buyer lives in a state where the seller has a physical location. They cannot be forced to collect taxes on behalf of the state until Congress gets involved.

So the states behind the Agreement are hoping the simplification of rules will convince Congress to make tax collection mandatory on all internet sales. The DMA says this would be too expensive for most businesses.

The DMA considers that recent announcements about nationwide retailers voluntarily agreeing to collect and remit states' sales taxes is simply a practical business decision on their parts.

In exchange for voluntarily collecting these taxes - something they may have been legally obligated to do anyway - they achieved two important goals: firstly, amnesty for any past taxes owed, and secondly, integration of their on-line and off-line businesses.