Momentum Gathers For SSTP Despite Doubts Over Lost Revenues

by Mike Godfrey, Tax-News.com, Washington

17 March 2003

As three more states join the Streamlined Sales Tax Project campaign (SSTP) a report by the Direct Marketing Association (DMA) has suggested that states' fears over the loss of potential revenue from online sales have been greatly over-exaggerated.

The group calculated that the total loss in revenue across the US last year amounted to some $2.8 billion - a lot less than some have estimated. To illustrate this gap, a study by the University of Tennessee reported that losses to state coffers in 2001 were a massive $13.3 billion. However, according to the DMA, those losses were more like $2.5 billion. The Tennessee study also projected that by 2011, these losses will have spiralled to $54 billion, whereas the DMA assert that the level will be more like $4.5 billion.

Author of the DMA report, Peter Johnson said: "The Internet is not creating a massive leak in state coffers." However, some have questioned the motives of the group, which represents direct marketers and catalogue sellers and which has lobbied Congress not to impose an online sales tax. Frank Shafroth of the National Governors Association said the University of Tennessee study was likely to be nearer the truth as they had no real vested interest in either side of the debate, a report from Reuters revealed.

Confusing the situation still further, the General Accounting Office conducted its own study into potential revenue losses, and came up with a figure of somewhere between $1 and $12 billion for 2003, illustrating just how vague this area is.

Nevertheless, the argument as to the exact level of losses to state coffers would seem to be increasingly irrelevant as the SSTP campaign gathers momentum. As Shafroth put it: "Whatever the number is, these are taxes that are owed." With Utah, West Virginia and New York joining the coalition of 40 or so cash-strapped states which are pushing for the SSTP code, the DMA and other anti-online tax supporters are unlikely to win the fight.

Commerce Department figures showed an increase of 28% in online sales last year, so it seems to be a matter of when, not if, the tax will come into force. According to SSTP co-chairman Scott Peterson this could be relatively soon. "We need to have a system up and operating, which probably won't happen until next year," he announced.

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