WASHINGTON-  Citing a study by the University of Chicago and National Bureau of Economic Research, Americans for Tax Reform today warned that new schemes to impose sales tax collection to e-commerce could cause the market to shrink significantly, spelling trouble for many online ventures.

Through an exhaustive analysis of 25,000 people with online access, Austan Goolsbee of the University of Chicago Graduate School of Business found that "local taxation plays an influential role in online commerce." Specifically, his research demonstrated that people living in places with high tax rates are "significantly more likely" to purchase goods online. As a result, Goolsbee concludes that applying a national sales tax collection system to the Internet would force a contraction of the e-commerce market by up to 24 percent or more.

Such a contraction would deal a crippling blow to many online ventures, including those traditional retailers as they make the transition from "bricks and mortar" to "clicks and mortar."

Ron Nehring, Director of National Campaigns for Americans for Tax Reform, said such a result would be "a nightmare for small business owners and entrepreneurs. Many online retailers and traditional retailers’ online ventures are in the red, and are counting on future growth to reach profitability. A 24% contraction would push many of these ventures to the brink and force others to close up shop entirely."

The National Governors Association and other groups representing politicians are waging an intense campaign to impose a national sales tax collection system that would affect all remote sales, including electronic commerce and catalog purchases. The plan has encountered stiff resistance from taxpayer groups.

Slashing the emerging e-commerce market would have obvious macroeconomic implications according to many tax and economic experts. They say fewer buyers would translate into less demand for Internet-capable hardware (PCs, routers, servers), software (browsers, server software, websites, databases, graphics), and telecommunications infrastructure. Americans for Tax Reform warns that diminished job growth, employment, and investment would be certain to follow. "The only question is, how bad will the damage be to the overall economy?" said Nehring.

An alternative, low-tax proposal has been offered by more than 30 taxpayer, consumer and public policy groups that make up the "e-Freedom Coalition." The Coalition’s proposal is available online at http://www.e-freedom.org. The study by Austan Goolsbee can be found at http://gsbwww.uchicago.edu/fac/austan.goolsbee/research/intertax.pdf.

For more information please call Chad Cowan at (202)785-0266, email to ccowan@atr-dc.org, or visit www.atr.org.