The sales tax base for state and local government is shrinking because of the expanded use of services which are not subject to sales tax and continued legislatively- granted exemptions. The erosion is also due to growth of remote sales including those made through e-commerce (Internet), the telephone and catalogs. By 2006, the loss will more than triple to $45.2 billion and in 2011, the loss will be $54.8 billion.
The total e-commerce loss is the sales tax loss on all sales over the Internet. Part of the loss would have occurred anyway even without ecommerce on sales, for example, which might have otherwise been made by purchasers using the telephone and catalogs.
The new e-commerce loss is from sales made through the Internet both on goods that would have otherwise been purchased from the over-the-counter method and projected new goods that will be purchased over the Internet. Measuring the states’ e-commerce revenue losses against their total state tax revenues also shows significant impact. In 2011, states will lose anywhere from 2.6 percent to 9.92 percent of their total state tax collections to total e-commerce losses. A final measurement of the impact of e-commerce losses is the needed increase in the sales tax rate to replace the lost revenue. In 2011, rates will have to rise by between 0.83 and 1.72 percentage points to replace the total e-commerce losses.
In 2006, the total and new revenue loss estimates of the national state and local revenue from e-commerce sales are $45.2 billion and $24.2 billion, respectively. By 2011, these figures are expected to grow to $54.8 billion and $29.2 billion. Indeed, the share of B2B transactions will expand to 95.0 percent by 2011. In 2006, the new state and local losses from e-commerce will range from $38.3 million to $3,180.7 million......
