E-Commerce Surge May Hit Tax Revenue

The rapid growth in internet sales is great for online retailers. But it’s not such good news for state and local governments.

The Commerce Department reported Thursday that e-commerce retail sales totaled $44 billion in the fourth quarter last year, up from $38 billion a year earlier. E-commerce sales now account for 4.3 percent of total retail sales (which include lots of things that don’t get bought online, like new cars, gasoline and restaurant meals), up from one percent a decade ago. For the year, e-commerce sales totaled $165 billion.

Many of those online purchases didn’t have any sales tax attached to them. Long before the Internet was on anybody’s radar, the Supreme Court ruled that states couldn’t require that retailers without a physical presence in a state, like mail-order companies, charge sales tax on their behalf. In recent years, states have tried to find ways around that ruling. Last fall, for example, Texas said an Amazon.com distribution center in Dallas counted as a physical presence and sent the retailer a past-due sale tax bill for $269 million. This month, Amazon said it is shutting down the distribution center as a result of Texas’s “unfavorable regulatory climate.”

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