Study: Internet sales taxes cost state a bundle

TALLAHASSEE -- According to a private report issued by Forrester Research, Florida lost $30.3 million in sales tax revenue last year -- and will lose $1.4 billion by 2003, unless the state starts collecting sales tax on items purchased over the Internet.

But, despite the fact that Florida gets 72 percent of its revenue from sales taxes -- more than any other state -- some industry experts, Gov. Jeb Bush and even Florida's own tax-collecting agency see no cause for alarm.

"In March, we collected 10.6 percent more tax money than March of 1999," says Dave Bruns, a spokesman for Florida's Department of Revenue. "If e-commerce is killing state's funding, then why is all this money rolling over the transom?"

That's a far cry from the stance adopted by the National Governor's Association, a bipartisan, nonprofit organization seeking ways to collect sales taxes on Internet transactions. "The current tax system was built for the horse-and-buggy era," says Frank Shafroth, director of state and federal relations for the NGA.

Shafroth and others point to the recently released Forrester report, which found that only about 20 percent of $13 billion in taxable retail goods was taxed this past year. While e-commerce remains a fraction of total economic activity, it is growing fast: The report estimates that Internet transactions will rise to $1.3 trillion by 2003.

"As more and more people buy online, there will be a loss in state revenue because people just aren't paying the sales tax," says Kurt Wenner, a senior analyst with Florida TaxWatch, a Tallahassee-based non-profit watchdog group. "Traditional taxation models just don't apply to the Internet, because the Internet doesn't pay attention to state and jurisdictional boundaries."

That's a particularly sensitive issue for Florida , which depends almost exclusively on state sales taxes for revenue.

Right now, "e-tailers" are obligated to collect Florida sales taxes on Internet purchases only if they have a physical presence in Florida: a store, for example, or a headquarters or sales office.

Buyers are supposed to send a check to the state's Department of Revenue to cover the sales taxes, but few do: States have no way to enforce this requirement.

That's an ongoing issue with mail order sales. However, the fast-growing Internet poses the same problem on a much larger magnitude: A study conducted by the University of Tennessee predicts that, by 2003, Florida's revenue collections will be down by more than 4 percent, the result of sales taxes lost to Internet shopping.