Report Finds US Consumers Indifferent To Online Sales Tax

by Mike Godfrey, Tax-news.com, Washington

03 May 2001

As the debate over Internet taxation rages on in the US, a report by American market intelligence firm Jupiter Media Metrix (JMM) has found that consumers are indifferent to online sales tax. Their apathy will no doubt disappoint those US politicians who have been campaigning so vociferously for the current Internet tax moratorium - due to expire in October 2001 - to be either extended or made permanent.

JMM reported that while the October expiration of the Internet Tax Freedom Act of 1998 will eventually lead to the demise of the Internet's tax-free status, the anticipated sales tax on all online purchases will not alter consumers' purchasing habits. According to the JMM survey, of online buyers that have abandoned a purchase in the past, 74 per cent do not choose one online retailer over another to avoid sales tax for purchases under $50.

Under current legislation, state and local governments risk losing up to $7.7 billion in lost tax revenues from online sales in 2005, according to JMM analysts. This loss represents seven percent of total sales tax revenue.

Heather Dougherty of JMM commented: 'Many brick-and-mortar retail companies launched separate online businesses in order to compete with nimble Internet-only retailers sheltered under the Internet Tax Freedom Act. But times have changed: the Tax Freedom Act, which intended to protect nascent Internet companies and stimulate e-commerce, is set to expire; the threat of Internet-only retailers now is miniscule; and state and local governments are feeling the sting of lost tax dollars. With the end of the tax-free Internet approaching, retailers must merge their online and offline tax-calculation and -collection capabilities, as well as integrate their Web and in-store functions to streamline customer service and overall business operations.'

Underscoring the negligible impact sales taxes have had on shopping over the Internet, JMM ratings data shows that six of the top ten US retail websites according to unique visitors in March 2001 are multi-channel retailers that are already required to collect tax in certain markets. The top three multi-channel retailers in March 2001 were books and music retailer Barnesandnoble.com, and computer giants Apple.com and HP.com (Hewlett Packard).

Tax and other critical issues facing the $36bn US online retail industry are due to be addressed at the JMM Retailing Forum starting Monday May 21, 2001 in Chicago at the Chicago Sheraton.

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