Sales and use taxes generate more than $150 billion per year and on average account for roughly one-third of state revenues.
A study by Forrester Research found that state and local governments lost $525 million in sales taxes in 1999 because of consumer purchases over the Internet. The study showed that $13 billion in taxable retail goods was sold online in 1999, but only 20 percent of commerce was taxed.
The Forrester Research study also said the states losing the most from Internet sales included California ($73.8 million), Texas ($51.9 million), Illinois ($32.6 million), Florida ($30.3 million), and New York ($26.6 million).
It is estimated that online sales will be $200 billion per year by 2004 and well above $1 trillion per year within ten years.
The inability to collect use taxes on remote sales would cost states more than $20 billion per year in 2003, according to a report released by the University of Tennessee.

What Are the Risks and Costs of Federal Legislation?

Federal proposals to eliminate so-called Internet taxes would only eliminate state taxes, while leaving federal revenues untouched. The federal airline ticket tax is just as much an Internet tax as state sales and use taxes. Customers who buy their airline tickets via the Internet still have to pay the airline tax. State sales and use taxes should be no different.
Proposals to codify the Supreme Court's Quill decision also are problematic. These proposals would go far beyond the existing Quill decision and eliminate tax-collection responsibilities for many businesses that are required to collect taxes today. The current moratorium does not expire until October of 2001, there is no compelling need to act at this time. This is particularly true since the technology is changing rapidly and creates substantial uncertainty with regard to unintended consequences. A rush to judgment on this matter could be detrimental to the Internet and electronic commerce industry, to Main Street America, as well as to state and local governments and all of our citizens who rely on government services every day.

Some of the technology issues that create uncertainty with respect to impacts include; bundled services, discriminatory tax definitions, and Internet telephony. These issues have little or nothing to do with the sales tax collection issue that has dominated debate on extension of the ITFA. They are, instead, the result of the rapid pace of technological change and developments since the ITFA was originally enacted. We believe it is important to the Internet industry as well as state and local governments that you address these issues as part of any extension of the ITFA. Failure to address them is likely to mean that the ITFA does not meet the expectations of Congress. The current estimates of increased migration of retail sales to the Internet means that federal action would sanction growing inequity that threatens traditional retail companies, while making clear that there is a double standard treating state and local revenues and revenue authority differently than the more than $70 billion in federal excise taxes collected annually.