A key component of Gov. McDonnell’s transportation plan is that Congress will pass the so-called “Marketplace Fairness Act,” which would then allow states like Virginia to compel online retailers to collect sales taxes. The McDonnell administration estimates such taxing authority could gin-up around $1.2 billion over five years for state road building activities.
But a new report on states already collecting online sales taxes indicates that the gusher governments were hoping for is more like a trickle:
A 2009 University of Tennessee study estimated that states would lose $11.4 billion in revenue in 2012 if they failed to collect more taxes from online sales. California’s loss alone, according to the study, widely cited by those pushing for the power to tax the Internet, would be $1.9 billion.
The reality in the Golden State has fallen far short of that expectation. The state is one of the few in the nation that has passed affiliate nexus legislation – the so-called “Amazon tax” – requiring out-of-state retailers with in-state affiliates to collect and remit sales tax on online purchases made by state residents. Last month the state’s Board of Equalization reported that in its first full quarter of collections, which included last year’s busy holiday shopping season, it took in $96.4 million, a much-needed boost to the state’s bottom line to be sure, but nowhere near the $457 million quarter implied by the Tennessee study.
In New York, another affiliate-nexus state, online retailers had remitted $360 million in sales taxes on over $4 billion in taxable online sales as of February 2012, according to the state’s Department of Taxation and Finance. While that figure represents about 90 percent of all taxable online sales in the state, it is also well below the $2.5 billion the Tennessee study predicted.
“To the extent the estimates being used are overstating reality, and I think they are, it is not solving anyone’s deficit problem,” said Navigant Economics Managing Director and Principal Jeff Eisenach, who co-authored a study that pegged the national online sales tax potential at $3.9 billion, about a third of the Tennessee study’s estimate.
So the nearly quarter billion dollars a year McDonnell’s team believes could come from online sales tax revenues may be overstating things. A lot.
Still…with an extra $50 million a year, VDOT could almost, but not quite, cover the costs it incurred for patching Virginia’s road network in 2011.
