1. The Debate Over Internet Taxation
And the Implications for Local Government Revenues
Suzette Barta, Oklahoma Cooperative Extension Service, Oklahoma State University
October 2, 2001

2. Michael Faraday describing electricity to a politician...
"Sir, I do not know what it is good for. But of one thing I am quite certain, some day you will tax it."
COURTESY OF THE ARCHIVES, CALIFORNIA INSTITUTE OF TECHNOLOGY.

3. Fascinating Facts
Average annual online expenditure among US adults who purchase online was $763 in (Emarketer)
66% of American workers have Internet access on the job. (Worthlin Worldwide)
58% of U.S. households are now online. (Nielsen/Net Ratings)
There is still a digital divide and income is the #1 driver of Internet usage. (Forrester)

4. Amazing Growth (Internet Shopping)
Percentage of US Population that has purchased on-line. % % % % %

5. Fascinating Projections US Online Retail Sales
$Billion
$184 b
$44.9 b
$7.8 b
Sources: Estimates by Forrester, and 2003 Projections by e-Marketer, projection by Forrester

6. Holiday Shopping On-Line
Source: Forrester

7. Top Five Web Properties: July 2001
Source: Nielsen//NetRatings

8. Most Popular Items Purchased online
Market Capture
(Adult Online Shoppers)
Books and Magazines
42%
CDs/Movies/Videos
39%
Travel Related
Clothing
29%
Source: Advertising and Deloitte and Touche on shop.org

9. Average Web Usage: July/2001
Number of Sessions/month 20
Number of unique sites visited 11
Time spent per month
10:19:06
Time spent per session
31:44
Duration of page viewed
00:51
Active Internet Universe
102 million
Current Internet Universe Estimate
165 million
Source: Nielsen//NetRatings

10. The Picture is not perfect for e-tailers
By November of 2000, dot.coms were failing at a rate of 1 per day.
•So far this year (2001), 248 dot.coms have closed for a loss of 87,795 jobs. That’s more than double the jobs lost in 2000.
Analysts agree: The days of triple digit growth are over.
•The U.S Government sold more via e-commerce in 2000 than Amazon.com did.
E-commerce firms are turning to the “old-fashioned” merchants for partnerships.

11. Trouble in Paradise?
Author: Jerry King, Newsfactor.com

12. Perspective... Based on U.S. Department of Commerce Data for 2000:
U.S. Consumer Retail Spending totaled $3.2 trillion
U.S. Online Retail Spending totaled $25.8 billion.
Online Spending still only totals about 0.8% of all
retail spending.

13. Business to Business E-Commerce (80-90% of online sales)
$Trillion
Source: The Boston Consulting Group:

14. E-Tax Opinion Survey

15. E-Tax Opinion Survey (Continued)
Source: National Research, Inc.

16. Counties report Good Financial Conditions
On the other hand, in a survey of counties, 84% reported financial conditions that were “very good” or “excellent”.
47% expect financial conditions to improve.
Source: County Revenue and Expenditure Patterns, National Association of Counties and Kansas University.

17. The most commonly cited figure is $10 billion by 2003.
How many tax dollars do state and local governments stand to lose due to e-commerce in the future?
The most commonly cited figure is $10 billion by 2003.

18. Share of Loss
Estimated Loss to the State of Oklahoma and All Local Governments in 2003 is $100 million.

19. State of Oklahoma Estimated Loss in General Revenue in 2003
0.51% or $60 million

20. Estimated loss for all OK Counties in 2003
Loss of 0.88% or $3.2 million

21. Considerations and Concerns
How reliable is the national estimate of a $10 billion loss by 2003?
Poorer and more remote counties may be impacted less due to less Internet accessibility.
Sparsely populated counties that are already subject to outshopping due to lack of retail will be impacted less.

22. Outshopping may be the more important issue
From , the average town in Oklahoma lost about $20,000 in sales tax collections due to increased out-shopping.
The average town lost $4,500 due to e-commerce.
While e-commerce is an issue, out-shopping may be an even greater one for rural communities.
Based on a study by Barta and Lansford (2000).

23. The Internet Tax Freedom Act - October 1, 1998
•Barred state and local governments from taxing Internet access from until
• Declared that the Internet should be a tariff-free zone.
• Issued a 3-year moratorium on multiple and discriminatory taxes on e-commerce.
• Established the Advisory Commission on Electronic Commerce which was to submit a report to Congress by 4/21/00.

24. Discriminatory Taxation
Any type of taxation
that is imposed on one
kind of retailer, but not
on others.

25. Ways to discriminate against internet retailers
Federal Internet Sales Tax
Allowing sales tax to be collected from an e-store by multiple states for a single transaction
Internet access taxes

26. Ways to discriminate against Brick& Mortar retailers
Allowing Internet retailers to be exempt from all sales taxes.

27. Commission submits its report on April 12, 2000
Bridging of the digital divide.
Protection of consumer privacy.
A permanent ban on international tariffs on e-commerce.
A simplification of state sales and use tax systems.
Permanent ban on Internet access taxes.
Extension of the Internet tax moratorium on multiple or discriminatory taxation.
Clarification of nexus standards.

28. Recent Legislative Activity
8/2/01: The House Judiciary Subcommittee on Commercial and Administrative Law passed the Internet Tax Nondiscrimination Act.
Calls for permanent ban on Internet access taxes and 5-year extension on current moratorium.
Makes no mention of a simplification compact among the states.
Will move to the full Judiciary committee in September.
10/21/01: Current ban on taxation will run out.

29. If a ban on new internet taxes is extended…
…what will be the impact on local government sales tax collections?

30. Measuring Impact on Oklahoma Governments in 2000.
Based on the respected Forrester/NRF Online Retail Index, B2C online retail sales totaled $44.9 bil in 2000.
About 1% of those purchases, $449 mil, can be attributed to Oklahoma.

31. 2000 Impact on Oklahoma State Sales Tax Collections
At a 4.5% state tax rate, the state lost about $20.2 mil in sales tax collections.
That’s a loss of about 1.5%.

32. 2000 Impact on Oklahoma County Sales Tax Collections
At an average county rate of 0. 4%, 63 out of 77 county governments lost about $1.8 million.
That’s a decrease of about 1.9%.
14 of 77 counties did not collect sales tax.

33. 2000 Impact on Oklahoma Municipal Sales Tax Collections
At an average municipal sales tax rate of 2.89%, cities and towns lost about $13 mil.
That’s a loss of about 1.5%.

34. Streamlined Sales Tax Project
Formed in March of 2000
38 states are involved
32 as voting participants
6 as non-voting observers
Objectives:
Simplification of state & local sales & use taxes
Standardization of tax administration across states
Identification of computer software that could be used to implement the collection of sales tax

35. SSTP Participants/Observers
No Sales Tax

36. Streamlined Sales Tax Project
Dec. 2000: SSTP approves:
Uniform Sales and Use Tax Administrative Act
Streamlined Sales and Use Tax Agreement
National Conference of State Legislatures (NCSL) also approved a simplification act.
NCSL provisions are less comprehensive than SSTP Act
State legislatures must adopt the act into law in their own states.

37. States That Have Signed SSTP or NCSL Legislation
SSTP Act Enacted
NCSL Act Enacted
Modified Act Enacted

38. Questions?