State policymakers frequently cite a 2002 study by two University of Tennessee economists estimating the amount of revenue the states would fail to realize in absence of a national system for taxing Internet sales. Based in part on an aggressive projection for total online sales, the Tennessee researchers concluded that the states would be losing out on $45 billion in tax revenue by 2006.
The Direct Marketing Association, whose members would be affected by any Internet sales tax plan, released a study in June 2003 undercutting that estimate. The DMA concluded that the amount of uncollected taxes on e-commerce would be just $3.2 billion by 2006.
Earlier this year, the states called for a follow-up study from the Tennessee professors. In July, the duo issued another report, claiming that state and local governments lost between $15.5 and $16.1 billion in 2003 from their inability to collect sales taxes from online retailers. The economists also significantly revised down the amount revenue lost to uncollected taxes on online sales, estimating that by 2008 the revenue losses for state and local governments will range from $21.5 billion to $33.7 billion.
The authors of the study cited several reasons for the more conservative estimate, including far less "robust" online sales than previously estimated, and the fact that several major retailers have since struck a deal to collect taxes on all of their online sales in return for amnesty for failing to collect back taxes.
-- By Brian Krebs, washingtonpost.com
