Research Shows Much Lower Revenue From Expanding Internet Sales Taxes

New empirical research conducted by economics and policy experts Robert Litan and Jeffrey Eisenach finds that Streamlined Sales Tax (SST) advocates are using inflated estimates of potential new tax revenue.

The research also finds that uncollected taxes may actually be declining as a share of state & local taxes, calling into question the need for a new and expensive regime to expand Internet sales taxes.  Given that uncollected sales tax on e-commerce accounts for such a small proportion of revenues, Eisenach & Litan suggest that state and local tax collectors would be best served by focusing their efforts on other potential revenue sources.

The entire study can be downloaded here and state-specific estimates can be downloaded here.

  • Uncollected sales tax on e-commerce in 2008 was $3.9 billion, far less than estimates used by SST advocates, and less than three-tenths of one percent of state and local tax revenues.
  • One-third of uncollected taxes are associated with small sellers with less than $5 million in remote sales, who would be exempt from collection mandates under previously introduced legislation. After exempting small sellers, potential new tax collections in 2008 were just $2.5 billion, or less than two-tenths of one percent of state and local tax revenues.
  • Uncollected revenues are not rising rapidly. Uncollected taxes (from firms with more than $5 million in remote sales) will average $2.7 billion annually over the 2008-2012 period.

 

  • The growth of ‘brick and click’ retailing (retailers with stores and e-commerce websites) will likely increase the proportion of online sales on which taxes are already being collected — even if Congress takes no action on SST.
  • A few large online retailers account for the bulk of uncollected taxes. For example, the top 10 sellers (ranked by uncollected taxes) account for 47 percent of total uncollected taxes.

The research was conducted by Jeffrey Eisenach and Robert Litan.   Eisenach is chairman of Empiris LLC and adjunct professor at George Mason University School of Law.   Litan is a senior fellow of Economic Studies and Global Economics Programs at the Brookings Institution and as the vice president of research and policy at the Kauffman Foundation.

 

Financial support for this research was provided by NetChoice.