Study says state, local government sales tax losses on e-commerce will top $54 billion by 2011

Tuesday, October 2nd 2001, 12:00 am

By: News On 6

WASHINGTON (AP) _ State and local governments will lose more than $54 billion in sales taxes in 2011 because of increasing commerce over the Internet, according to a new study published as Congress debates the future of taxes on the Web.

The study by the Center for Business and Research at the University of Tennessee, set for formal release Tuesday in Washington, also raises by 41 percent its previous estimate of sales tax losses in 2001, from $9.4 billion to $13.3 billion.

The new figures could influence the debate on Capitol Hill about whether states should be allowed to set up a simpler, streamlined system allowing collection of sales taxes on remote purchases. These taxes already are imposed but are collected rarely, partly because of a Supreme Court ruling that a business must have a physical presence in a state before it has to collect the state's taxes.

Congress is moving to extend a moratorium that expires Oct. 21 on Internet access taxes and taxes that single out the Internet. State and local governments, joined by a coalition of traditional retailers, say the moratorium measure should include permission to begin setting up a new sales-tax system.

``The current sales-tax system is not compatible with a 21st-century economy,'' Utah Gov. Mike Leavitt, a Republican who co-chaired a congressional Internet tax advisory panel, said Monday in a telephone interview. ``The states should be allowed to fix it.''

The study was commissioned by the Institute for State Studies, a Salt Lake City-based nonprofit organization that examines public policy related to technology.

Forty-five states and the District of Columbia currently levy sales taxes. Based on data from Forrester Research Inc., a leading e-commerce firm, the University of Tennessee study found that projected revenue losses in 2001 ranged from a low of $21 million in Vermont to a high of $1.75 billion in California.

By 2011, according to the study, Vermont's losses would reach $87.2 million and California's would top $7 billion. Total sales tax losses were estimated at $54.8 billion in 2011.

With losses of that magnitude, state and local governments would be forced to choose between raising taxes or cutting services such as schools, law enforcement and fire protection, the study's authors said. Sales taxes, they said, would have to go up as much as 1.7 percentage points to compensate

``When other factors causing sales-tax revenue to shrink are added in, the projected tax increases are even higher,'' said William Fox, a University of Tennessee professor and study co-author.

In Congress, the House appears likely to move ahead with a relatively simple extension of the Internet tax moratorium that does not address the sales tax question. A bipartisan group of senators has been trying to reach accord on sales taxes but has been unable to do so.