State online sales tax losses grow (editorial)

on February 23, 2012 at 9:01 AM, updated February 23, 2012 at 9:04 AM

HUNTSVILLE, Alabama _ Alabama politicians someday may be faced with a decision over whether to require online retailers to collect tens of millions of dollars in sales and use taxes slipping away every year.

According to an analysis from the University of Alabama in Birmingham, state, county and city governments are losing about $200 million a year in uncollected taxes on Internet sales, $1 billion every five years. In addition, the state is losing the potential to add 3,500 to 4,000 jobs a year because of the loss of retail sales.

State law requires residents to pay sales taxes on Internet transactions -- there's a place on state income forms to report those taxes due -- though relatively few people do so.

The study's lead author, Bob Robicheaux, chair of UAB's Department of Marketing, Industrial Distribution and Economics, told The Birmingham News in a story Tuesday that there's an urban myth that shoppers don't have to pay taxes for things they buy online.

"There are a lot of people walking around who really just believe that if the company that sells it to them doesn't charge them sales tax, then they don't owe it," Robicheaux told The News' Dawn Kent. "That is not true."

But many people do know better and buy off the Internet to save money on a purchase, and not just on the sales tax. Retailers report that some people use their stores as showrooms to check out an item and then go online to buy it a discount from a big Internet retailer who can sell for less because they move a lot of merchandise.

Then there are some people who do pay the taxes due after they shop on the Internet. According to Robicheaux, Alabama taxpayers sent the state $700,000 last year in sales taxes on Internet purchases.

The solution to this huge loss of revenue might be simple except for a 20-year-old U.S. Supreme Court ruling that retailers who have no physical presence in a state cannot be required to collect taxes on sales originating there. A bill pending in Congress would establish a national Internet sales tax.

And for state and local governments, this is a problem that will only grow larger as time goes by. Census data shows that 5 percent of all retail sales occur online, and Robicheaux believes the dollar volume will grow about 7 percent a year. By 2020, one out of 10 purchases may be made online.

Alabama's normally anti-tax political leaders should lobby Congress to pass a solution. There is simply too much money at stake, especially for a state living from windfall to windfall to run its prisons and provide other essential public services.

By Mike Hollis, for the editorial board. Email: