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DMA Contradicts State Claims on Lost Revenue From Online Sales

States are not losing nearly the amount of tax revenue from online sales that they claim, the Direct Marketing Association said yesterday in releasing “A Current Calculation of Uncollected State Sales Tax Arising from Internet Growth.”

Using U.S. Department of Commerce data, the report claims the potential uncollected tax revenue to the states is 85 percent less than cited in prior studies. For example, states reported $13 billion in uncollected taxes on Internet sales in 2001, the DMA said, but the total was actually $1.9 billion.

Further, the DMA said, a much-cited study from the University of Tennessee erroneously relied on data from the Internet boom years and made flawed assumptions about e-commerce that resulted in vast over-estimates. Among these flaws were:

· Internet growth rates of 38 percent annually.

· Failure to separate business-to-business Internet activity from pre-existing BTB e-commerce.

· Excessively low rate of business compliance on sales tax remittance.

“The analysis of Internet economic activity in America that we released 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,” DMA president/CEO H. Robert Wientzen said.

The DMA also said that the cost to direct marketers forced to collect sales taxes would be high.

“Some estimates suggest that the yet-to-be-developed software for almost every business in America to manage its cumbersome obligations to 7,600 taxing jurisdictions could cost $25,000 per license and $60,000 for set up,” Wientzen said. “Moreover, most businesses would have to create departments and hire staff in order to comply with all of the states' tax codes and rules. The states are simply asking for too much from businesses who are trying to weather today's economic doldrums.”

Finally, the DMA said recent announcements that national retailers have agreed voluntarily to collect and remit states' sales taxes is simply a practical business decision on their parts. In exchange for voluntarily collecting these taxes, they achieved two important goals: amnesty for any past taxes owed and integration of their online and offline businesses.

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