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E-commerce sales cost $13 billion, study
says The growth in e-commerce is costing US States
billions of dollars a year in lost revenue, according to a report published
this week. The report, published by the Center for Business and Economic Research at the University of Tennessee, states that by 2011 the loss could account for up 9.92% of all State tax collections. The report, entitled State and Local Sales Tax Revenue Losses from E-Commerce: Updated Estimates, foresees that States will have to increase tax rates by up to 1.7% to compensate for the loss unless tax regulations are changed. "The extent to which e-commerce reduces state and local sales tax collections continues to be an important issue," said the report. "The revenue impacts [of lost collections] are significant." In a 1992 ruling, the Supreme Court ruled that States could not tax retailers that did not have a physical presence within a state. The ruling was originally aimed at catalogue and mail order retailers, but online retailers also benefited. But with the growth of the internet, this exemption has led to a far larger number of remote sales than was originally envisaged: of the $13.3 billion lost this year, $7 billion was from sales that the report's authors believe would otherwise have been handled in a physical shop. Losses occurring because customers use the internet rather than a physical shop will be almost $30 billion by 2011, the report said. All eyes now turn to Congress. In August, 44 State governors pressed for the inclusion of sales tax provisions in any extension of the moratorium on internet access taxes, which expires on October 20. But it is expected that the legislature will extend the moratorium, without additional provisions until at least mid-2002. Governors push for US internet tax Over 40 US state governors have signed a letter sent to Congress calling for an end to the ban on internet-specific taxes. The governors argued that their states are suffering through lost revenue from sales on the internet. There is also concern that traditional retail outlets are unable to compete because they have to pay sales tax, thereby pushing their prices up compared with e-commerce vendors. The governors are concerned that the moratorium could be extended, preventing any chance to assess ways to pioneer an online sales tax. The moratorium was initially introduced for three-years under the Internet Tax Freedom Act of late 1998, though it looks as if Congress will extend the ban indefinitely. Many US states rely heavily on sales tax for revenues. An extended ban and an Increase in e-commerce could mean a greater amount of potential state revenue is lost. For any queries to Ecom Taxpert Group, you
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