States Miss Out Out On Billions As Online Sales Taxes Go Uncollected: Report

Amazon CEO Jeff Bezos addresses a press conference to introduce new Amazon and Kindle products in New York, September 28, 2011.

State governments are losing out on much-needed tax revenue from rich online retailers, even as they're forced to lay off teachers and policemen.

The state of Missouri alone has lost $468 million per year in uncollected online sales tax revenue over the past decade: $4.68 billion in total, according to a new study from David Valentine, a public policy professor at the University of Missouri. The study estimates that Missouri will lose another $1.4 billion in sales tax revenue to online retailers between 2011 and 2014. (h/t the Kansas City Star.)

To put that lost tax revenue into perspective, that $468 million would comprise 38 percent of Missouri's entire annual education budget, which state lawmakers are slashing.

Some states have tried to collect sales tax from online retailers voluntarily, but their efforts have largely failed, according to the study. On average, the 24 states collecting voluntary online sales tax revenue collected $30.7 million in online sales tax revenue between 2005 and 2010. Missouri is not one of those 24 states.

Online retailers are taking advantage of a 1992 Supreme Court decision that mandates that states cannot force online retailers to pay sales taxes unless they have a physical connection to the state, according to NPR. Amazon.com does not have a physical presence in most states and is based in Seattle.

Online retailers have also been paying minimal federal income taxes. Apple paid a top tax rate of 9.8 percent last year, Google paid a tax rate of 11.9 percent, and Amazon.com paid a tax rate of 3.5 percent, according to the Greenlining Institute. This is thanks in part to the fact that online retailers such as Apple and Google claim they are selling their products online around the world from low-tax countries such as Luxembourg, the Netherlands, Ireland, and the British Virgin Islands, according to The New York Times and Bloomberg News.

Correction: An earlier version of this story incorrectly said that Amazon was based in California.

Comments

[Keith Yockey]

12:24 PM on 05/06/2012

The $468M figure used in the article is bogus at best. This represents $11B annual online sales in MO. That means every man, woman and child in the State spent $150/mo online. Bull!

[StenWilson]

02:54 PM on 05/06/2012

What in depth research are basing you conclusion upon? The University of Tennessee Study completed in 2009 is accepted and unchallenged among think tanks, economists, businesses, local and state governments, and the Federal government as a valid and reliable study supporting $468M.

[StenWilson]

09:00 PM on 05/06/2012

(Above typo) What in depth research are you basing your conclusion upon?

[First Blast]

06:51 PM on 05/05/2012

Let's not forget the myriad other ways states rip off people and drain them of their hard earned wages.

[First Blast]

06:50 PM on 05/05/2012

Cry me a river

[banana republican]

02:44 PM on 05/05/2012

I can guarantee you this: there isn't a single one of us 'tax-the-rich' progressives who would ever dream of buying something online and avoiding the sales tax. I mean, really! That would make us no better than these evil corporations who exploit the tax loop holes available to them. We're WAY above that!

[TrutherUSA]

02:13 PM on 05/05/2012

Companies who sell products online should be required to collect sales tax and send it to the state. It is an unfair business practice when brick and mortar stores lose sales because online stores don’t have to collect taxes. This gives the customer the appearance that online is cheaper but when people buy online they are actually hurting themselves and their local economy. Keep in mind that on-line companies like Amazon use automated warehouses or direct ship from manufacturers so they need few employees. When you shop online you cost one of your neighbors their retail job, which for many teens is their first job experience. You also cut the local tax dollars so the state/county can’t afford teachers, police, road repairs, etc, etc. You may save a buck or two but the cost to your hometown is much greater. Some online retailers have stated that it would be too hard to collect state/local sales taxes because there are so many locations and the rates vary. I say that is BS since in the computer age all they have to do is access the database with the tax rates and collect it. If no such database exists today I am sure the states would be more than happy to provide the tax rates and post them into a system.

[StenWilson]

03:03 PM on 05/05/2012

Thank you TrutherUSA, you are correct there are 6 Certified Service Providers (CSP) approved by the Streamline Sales and Use Tax Governing Agreement (SSUTA) that can easily provide solutions for tax calculation, collection, and remittance. Each CSP offers a unique product creating a diverse group of services for businesses of any size. The entire simplification and software approval process has been underway for over a decade. Technology today is easily capable of tax processing and simultaneously rids pesky use tax burdens for consumers, eliminates legacy burdens for businesses, and automates the collection process for states eliminating out dated bureaucracies.

[Mark Cormier Arizona]

01:35 PM on 05/05/2012

Just one more reason to eliminate the current convoluted tax code and implement the Fair Tax....these and many other taxes would be collected.
Read it, support it.....its HR25 in congress.
http://www.amazon.com/The-Fair-Tax-Quick-ebook/dp/B007I9AKN8/ref=sr_1_3?ie=UTF8&qid=1336239274&sr=8-3

[TruEngineHearing]

11:00 AM on 05/05/2012

They should really change the name - it's obviously aching to morph into a 'purchase tax' for state residents; not a 'sales tax' for state businesses. And when Amazon starts harrassing its suppliers for cheaper prices to offset the new 'tax', you will see pressure to lower wages.

This is definitely not the time for gouging both workers and consumers by raising the price of making a sale.

[StenWilson]

01:23 PM on 05/05/2012

The price changes in no way since the sales tax due is legally required to be paid by the consumer on all Internet purchases. Saying the price will increase because many now have to pay tax legally due that many have been illegally evading is hardly a valid argument. The fact is many states since 1935 have had use tax due on ALL of state purchases.

[TruEngineHearing]

10:07 PM on 05/05/2012

Phooey. The practical fact - the one that actually matters - is that many many many people have counted on not paying that tax. Now they'll be either paying it or looking elsewhere - or the online marketer will find the product cheaper so as to keep the price steady and attractive.

[Basselope]

10:48 AM on 05/05/2012

What is lost in most of these comments is that the taxpayer (YOU) are supposed to report when you buy an item from an online retailer and pay the tax on your state tax forms.

By not reporting items purchased from online retailers you are cheating on your taxes.

[Zilo]

10:40 AM on 05/05/2012

I think it's annoying that states are now trying to close their deficits by hitting up online companies. Unless the company's corporate headquarters or storage facilities are housed in that state, their customers shouldn't have to pay state sales taxes. This is just the states looking for ways to force other people to help fix problems they themselves created. The internet allows companies to offer lower prices. Brick and mortar stores can be mad all they want, but that's just an advantage to them being online.

[myakkakat]

10:46 AM on 05/05/2012

As a small business owner that also sells via e-commerce I couldn't agree with you more. As it is, I have to charge and report the correct sales tax rate for every single county in Florida and there are MANY of them. Imagine trying to determine a sales tax rate for a differing state? The reason the internet has grown as big as it is was because people could do home-based businesses as sellers and the buyers would save money on sales tax if they bought out of state. If they do this many will close their doors over the additional bookkeeping costs with NO additional revenue to offset those costs. There will be people losing their jobs over this IF it happens.

[Zilo]

11:18 AM on 05/05/2012

Exactly. The people trying to go after Amazon don't know what they're doing, as usual. This is one of the few places I agree with the Republican position. People consider sales taxes when they're making a purchase online and the people who want Amazon to attach sales taxes are going to lessen their ability to do business. So consumers probably just won't make that purchase or will look for it cheaper somewhere else.

[StenWilson]

01:34 PM on 05/05/2012

The proposed legislation is actually bipartisan and strongly supported from the local level up to the Federal level. My company utilizes free technology enabling it to process sales tax for any jurisdiction in any state. There is no question that technology can easily enable any business to process sales tax. The real unrecognized issue is the fact this burden primarily exists due to residents evading tax legally due. Over the past decade many consumers falsely maintain out of state Internet transaction to be Tax Free. Nothing could be farther from the truth. Since 1935 most states have required residents to pay use tax on their out of state purchases. The problem is few residents honor their obligations. This growing trend of tax evasion is now forcing states to respond. The only people to blame for the current situation is those who continue to evade their tax obligations. Every time you go to support ballot initiatives raising funding for education or infrastructure, but then in turn evade to fund the program states' are forced to raise other taxes and fees.

[TrutherUSA]

02:19 PM on 05/05/2012

Bravo. Well said and very true. All the "reasons" to not collect the tax are just smoke screens and they cover up the fact that these purchases hurt the customers local economy more than they save the customer.

[frank1946]

10:23 AM on 05/05/2012

Sad but True !

Internet in reality is very anti-social..................Geeks don't want to pay fair share.

Bezos should take the lead to fix this ?

[Life With HC]

09:51 AM on 05/05/2012

The author fails to note that the sales tax would be collected not from the online retailer, but from the citizen purchasing the item. Joe Average pays the tax to Amazon and Amazon turns it over to the state. Amazon doesn't pay the tax out of its own pocket. It collects it from you and me.

Why is the author failing to just call for higher prices on internet sales. Making you pay tax on online sales is just another price increase. I resent the author not stating this fact plainly.

[Basselope]

10:44 AM on 05/05/2012

Not a correct analysis.

You forget that YOU, the tax payer are SUPPOSED to pay the tax. When you purchase a TV from Amazon for say $1000 (and pay no tax) you are SUPPOSED to report that on your state income tax form and pay the tax at that time. The fact that you choose to cheat on your taxes and not report it, doesn't mean you paid a lower price, it means you lied and got away with it.

Generally this burden is shifted to the business because it is easier for them to collect it at the time of sale and send it straight to the state.

[Life With HC]

10:04 PM on 05/05/2012

I guess you don't like a bargain. You like paying taxes.

[FOXYROSE]

04:52 PM on 05/04/2012

Sales tax will be addd to the price of the item and the shipping costs - that makes some items too expensive to buy online. People that are counting their pennies will feel these increases.

[MyResponsibility]

02:16 PM on 05/04/2012

I, too, have missed out on millions of dollars of income from jobs I never had...

[Zilo]

10:37 AM on 05/05/2012

Lol. Exactly.

[UberdanSounds]

01:21 PM on 05/04/2012

I used to be against charging online retailers a tax, now I'm for it. It seems that this is the way we have evolved as consumers & should be charging sales tax now. Plus, I think Amazon can handle it, they're an international company with many locations. Course, they'll push the cost off to the consumer.

[Life With HC]

09:52 AM on 05/05/2012

In other workds, you are in favor of internet sales being taxes. You are in favor of people paying more for things they buy on the internet.

[Sterling Riley]

09:07 AM on 05/04/2012

lots of reasons why I dislike amazon...but not charging sales tax is another reason

[Zilo]

10:40 AM on 05/05/2012

Amazon is awesome.