| Report Finds Internet Sales Likely to Further Erode Sagging State Revenues | |
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FRANKFORT, KY (December 30, 1999) — The Kentucky Long-Term Policy Research Center released a report here today on the potential revenue losses that exploding Internet sales could portend for the state in coming years. By the year 2002, an estimated 30 percent of Americans age 14 and older are expected to join the ranks of online shoppers. Already, a survey conducted by the University of Kentucky Survey Research Center for the Kentucky Long-Term Policy Research Center shows that 18 percent of Kentuckians are making purchases online. But national estimates suggest that between 4 percent to 16 percent of consumer online sales result in sales and use tax payments. To explore the potential impact of these trends, Collecting Taxes in the Cyberage presents alternative annual forecasts of lost state revenue. In the year 2003, the authors estimate that revenue losses from unpaid sales and use taxes could range from a low of $2.2 million to a high of $46.4 million. Cumulative losses over the six-year period examined, 1998-2003, could be as high as $115 million. The authors’ projections are based on a range of factors, including the potential volume of electronic sales, the lower rates of Internet use and consumer expenditures found in Kentucky, and likely rates of compliance with tax laws. These survey results also suggest that many of Kentucky’s online buyers will not likely pay the taxes they owe the state. Nearly half of Kentuckians (44 percent) reported that they were either "somewhat unlikely" or "very unlikely" to pay the taxes due the state. Importantly, however, a significant portion of those surveyed (37 percent) reported that they had never heard of the sales and use tax they were expected to pay on online purchases. The survey also found that the typical online buyer in Kentucky is a college-educated male, who earns at least $50,000 a year and lives in the urban triangle of the state. Because sales and use taxes presently comprise roughly 35 percent of Kentucky’s total revenue collections, further erosion of these revenues could compel revisions of Kentucky’s system of taxation. Reckoning with potential losses in revenue to e-commerce is certain to be the "preeminent tax policy issue" before state policymakers over the next decade, writes contributing author Merl M. Hackbart, a University of Kentucky economist and economic advisor to the state. Higher rates of personal spending on services have already stalled growth in revenue generated by the sales tax, making the state increasingly reliant on its income tax. The report also offers some policy options that could help increase compliance with these taxes. Because many electronic shoppers are unaware of the sales and use tax they are obligated to pay on online purchases, the authors recommend raising the level of public awareness through educational initiatives and increased taxpayer assistance. State policymakers also could intensify their focus on retailers or vendors, pursuing more cooperative interstate and vendor agreements that provide for a return of revenues due the state. Other possible legal avenues open to the state should also be fully explored, the authors recommend, but actions at the federal level will likely be required to address this growing problem for states. In addition to closely monitoring congressional activity, the authors recommend that Kentucky’s policymakers join with other states in pursuing national sales tax reform. Collecting Taxes in the Cyberage includes contributions from Michael T. Childress, Executive Director of the Kentucky Long-Term Policy Research Center, who also edited the volume; Robert W. Cox, Deputy Executive Director of the Governor’s Office for Economic Analysis; Merl M. Hackbart, Professor of Finance and Public Administration at the University of Kentucky and a Senior Policy Advisor to the Governor; Charles W. Martie, Director of the Division of Research and Development at the Kentucky Revenue Cabinet; and Peter Schirmer and Kevin O’Neil, former staff members of the Kentucky Long-Term Policy Research Center. Copies of the report are available from the Kentucky Long-Term Policy Research Center free of charge. To request a copy, contact the Center by mail at 111 St. James Court, Frankfort, Kentucky 40601; by phone at 502-564-2851 or 800-853-2851; by fax at 502-564-1412 or 800-383-1412; or by e-mail at ltprc@lrc.state.ky.us. |
