WASHINGTON--Online sales topped $104 billion in 2003, a nearly 40 percent jump over the previous year, and yet state and local governments lost an estimated $15.5 billion in revenue because states cannot effectively collect sales and use taxes on e-commerce purchases, according to a report commissioned by the National Governors Association (NGA) and National Conference of State Legislatures (NCSL) and updated figures from the University of Tennessee's Center for Business and Economic Research.

The reports support those who are working to simplify state sales tax systems and level the playing field for all retailers under the Streamlined Sales and Use Tax Agreement (SSUTA). In recent years, NGA and NCSL have spearheaded efforts to simplify and streamline the system through the SSUTA, which would create one uniform system to administer and collect remote sales taxes.

"These studies show how absolutely critical it is for states to collectively simplify their antiquated sales tax laws," said NGA Executive Director Ray Scheppach. "To date, 42 states and the District of Columbia have signed on to work towards a simplified tax system. Implementation of the agreement would level the playing field between 'remote' sellers that are not obligated to collect and remit sales taxes and Main Street retailers, which must collect sales taxes."

In the first report, The Growth of Multichannel Retailing, Forrester Research found that established "brick and mortar" stores, like Borders and Wal-Mart, are increasingly selling their goods online, transforming the whole notion of retailing by catering their business to tech-savvy consumers. Forrester credits today's e-commerce boom with traditional Main Street stores' effective use of the Internet rather than Web-only retailers like Pets.com. "With the exception of online sellers Amazon.com and eBay," the study says, "the majority of online sales are by the same retailers that dominate offline sales."

Internet sales at so-called "Multichannel" stores, such as Target and Sears, grew almost 60 percent in 2002 and 32 percent last year, whereas Web-based retailers grew only 13 percent in 2003. Thanks in part to the continued expansion of broadband technologies in U.S. homes, Forrester expects online retailing to grow annually at a rate of nearly 20 percent in the next five years and estimates Americans will spend nearly $230 billion online in 2008, or 10 percent of the nation's total retail sales.

"Recent Census data shows the sales tax is once again the dominant revenue source for state government. This validates the need for states to continue to simplify and streamline the current sales and use tax systems," said NCSL Executive Director William Pound. "Corresponding action by Congress to give the states that streamline the authority to require all remote sellers to collect those states' sales and use taxes, will close the revenue gap reported by the updated Fox report."

The second report, State and Local Sales Tax Revenue Losses from E-Commerce, updates two previous University of Tennessee studies in which researchers examined the effects of e-commerce on state and local government revenues. The latest report suggests that e-commerce has "been a less robust channel for transacting goods and services than was anticipated when we prepared the earlier estimates" but nonetheless found that "revenue erosion continues to represent a significant loss to states and local government."

According to the report, state and local governments lost between $15.5 and $16.1 billion in 2003 as states are unable collect sales taxes from online sales. The trend is only supposed to increase, as the report projects that 2008 revenue loss for state and local governments would range between $21.5 billion and $33.7 billion, with the greatest losses occurring in states that rely most heavily on the sales tax as a revenue source.

Broken down, state governments stand to lose between $17.8 billion and $27.8 billion in 2008, while local governments will lose between $3.7 billion and $5.8 billion that year, according to the University of Tennessee study.

For a copy of the complete reports, log on to the NGA Web site at www.nga.org or the NCSL Web site at www.ncsl.org.

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