State Tax Loss To Internet Growing

KNOXVILLE, Tenn. — Tennessee’s loss of tax revenue on Internet sales is growing rapidly and will cripple governmental services, a University of Tennessee economist said Friday.

Dr. Bill Fox said Tennessee and 44 other states lost approximately $200 million in sales taxes in 1998. He said Tennessee lost less than $10 million last year and estimated that loss could grow to $100 million by 2002.

Fox is a special counsel to the Advisory Commission on Electronic Commerce. The group of 19 government, business and consumer representatives was formed by Congress to examine whether Internet purchases should be taxed.

“Clearly, if there is no tax on commerce on the Internet, Tennessee would be severely hampered,” Fox said. “A sales tax cannot be an effective revenue instrument if I go to a store and must pay tax on an item, and not pay tax if I order the same item via Internet.”

The State of Tennessee’s budget problems are due largely to a tax structure that depends heavily on sales taxes, he said.

Nationwide, Internet sales totaled about $10 billion last year and are expected to top $100 billion by 2003. Most are not taxed, he said.

Fox told the commission, which is split on taxing Internet commerce, that state and local governments’ need to be considered and administration of the tax must be simple. He said it is likely that there may only be a state rate, with no funds going to local governments.

“I am very concerned when the federal government steps in and says state and local governments cannot tax in a certain way,” Fox told the commission.

“I think we need to think about state and local government services such as education, police, and trash Collection and imagine how our ability to produce as an economy would suffer without them.”

The commission will meet three more times and make a recommendation to Congress next year.