Standard and Poors
NEW YORK Aug. 24, 2006-- For consumers in search of fast, convenient service and discount prices without the hassles of crowds and parking lot traffic jams, the Internet has become a shopper's paradise, according to a report published today by Standard & Poor's Ratings Services titled, "Internet Sales Taxes: States May Finally Get Their Due."
But some state and local governments facing rising operating costs and budget crunches feel the pain of missing tax dollars.
"Sales tax revenues proved generally more stable than state income taxes, particularly for jurisdictions with large populations," said Standard & Poor's credit analyst David Hitchcock. "But the jury is still out as to whether the rising amount of retail sales on the Internet will translate to significant lost sales tax revenues over the next few years and whether bondholders should be worried," he added.
Over the years, online merchants and the states have squabbled over whether retailers should be forced to collect sales taxes. But soon that may change. In an effort to finally comply with the U.S. Supreme Court's 1992 ruling that retailers cannot be compelled to collect and remit out-of-state sales taxes, some states have banded together to create the Streamlined Sales Tax Project (SSTP). Its goal is to meet the Supreme Court's objections against requiring retailers to collect out-of-state sales taxes by creating uniformity in the items taxed, and it changes state and local tax codes to remit taxes based on destination of a shipped item, not its origin of sale.
For the time being, the loss of Internet sales taxes doesn't appear significant to state finance departments, as overall sales taxes continue to show strong growth. Nevertheless, states continue to worry that online sales will increase to the point where the loss will make a big difference.
"If projections of rapid growth in Internet sales are borne out, we would likely know in the next few years if lost Internet sales taxes will be significant enough to cause harm to municipalities," added Mr. Hitchcock. "It remains to be seen as to whether these losses will be big enough to move the meter on credit ratings."
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