Impact of E-Commerce on Cities and their Residents
As chief elected officials of
American cities, mayors take pride in striving to make their cities the
best places in America for citizens to live and enjoy the highest quality
of life. A place where:
Mayors across the nation share these goals. These are just a few of the vital public services that our citizens depend on us to provide. Without them, no community can survive. That's why it is important that these services are funded at adequate levels. For decades we have relied on the sales tax to fund these critical services. But a few years from now, the sales tax may no longer be a viable revenue source for state and local governments. Key Issues for Mayors on Internet Taxes There is a loophole in our tax system that is undermining state and local sales taxes. The loophole is tax-free Internet sales. Under our current tax laws, local merchants in most states are required to collect taxes on over-the-counter sales but out-of-state- merchants are not required to do so on Internet transactions. If this problem is not corrected soon, billions of dollars will continue to be lost in unpaid sales taxes. This could eventually lead to an increase in income and property taxes, neither of which would be a popular choice. But it doesn't have to be that way. In fact, if the sales tax is collected on all appropriate sales, there quite possibly could be an opportunity for a tax cut instead of a tax increase. Impact of Tax-Free Internet Sales The loophole means, quite frankly, that people can use the Internet as a tax haven to avoid paying state and local sales taxes. This problem stems from Supreme Court decisions: National Bellas Hess, Inc. v. Illinois in 1967, and Quill Corp. v. North Dakota in 1992. In those decisions the Court ruled that state and local governments cannot require out-of-state merchants to collect their taxes when they sell goods to customers residing in their areas. This problem first surfaced in the late 60s on mail-order-sales. As this problem grew, state and local governments lost an estimated $5 billion annually. The loophole generated by electronic commerce will drain state and local revenues at a much faster pace. According to a recent study conducted by the University of Tennessee, state and local governments will lose an estimated $20.1 billion by 2003 due to electronic commerce. This amount will continue to grow in future years as more customers go online to make tax-free purchases over the Internet. Forty-five states and the District of Columbia, on average, depend on the sales tax for approximately one-third of their total revenues and in over half of these states, local governments are authorized to impose a local sales tax. As elected leaders, mayors realize that state and local governments cannot continue to provide essential public services if the sales tax continues to erode anywhere near the levels projected. An Advisory Commission appointed by Congress to examine this issue and make recommendations, failed to reach the broad based consensus required by law. Instead, industry representatives on the Commission recommended more loopholes and tax breaks that would cost state and local governments an estimated $30 billion annually. How to Address This Issue To address this problem, state and local leaders are working together nation-wide to reform our sales and use taxes so they will be simple and easy for out-of-state merchants to collect.
What You Can Do To Help You can help by urging your Representatives and Senators in Congress to pass legislation authorizing states to participate in a multi-state compact to streamline and simplify their taxes. For those that do, Congress must grant them the authority to require out-of-state merchants to collect their taxes. |