Study: $525 Million in Sales Taxes Went Uncollected Online in 1999

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The states rights side of the Internet tax debate got ammunition for their cause yesterday after analysts at Forester Research, Cambridge, MA released a study that found only 20 percent of the $13 billion in taxable retail goods sold online in 1999 were taxed by the states.

Even though $140 million in taxes were collected from online purchases last year, $525 million was left on the table, according to the study. The five states that lost the greatest amount of online sales tax revenue were: California, which lost $73.8 million; Texas, $51.9 million; Illinois, $32.6 million; Florida, $30.3 million; and New York, $26.6 million.

Internet, catalog, and brick-and-mortar sales should all be taxed the same -- based upon a buyer's physical location, Forester said in a statement.

"New technology will enable companies to easily collect taxes across multiple locations," said Steven J. Kafka, analyst, eBusiness Trade Research, Forrester. "Also, retail taxes won't keep consumers from shopping online because they seek convenience, selection, and added services -- not a tax break. Finally, state governments will not relinquish potential revenue from tax dollars to retailers and consumers."

James L. McQuivey, research director of Technographics Data & Analysis at Forrester, headed up the survey -- which calculated sales taxes earned and lost for each state and surveyed 8,900 online purchasers to find out how much they care about avoiding sales taxes online.

"Only 22 percent of the consumers surveyed shop around to avoid paying sales taxes online." McQuivey said. "Shipping charges, on the other hand, are much more important than taxes. If left as is, taxation issues will only get worse as online retail sales grow to $184 billion in 2004."

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