Uncollected sales and use tax revenue from online purchases in Alabama will amount to more than $1 billion over the next five years, according to a new analysis from the University of Alabama at Birmingham. That study shows untaxed online purchases cost the state, counties and cities about $200 million per year in taxes. Additionally, the study says the potential is lost for 3,500 to 4,000 jobs annually, as the loss of sales at retailers in the state stunts job growth.
Online sellers who have a nexus — a link or connection through retail or other operations — in a state do collect and remit sales tax, but retailers that have no physical presence in a state cannot be required to do so. This came about as the result of a U.S. 1992 Supreme Court opinion. But the Court in that case did not exempt buyers from the obligation to pay sales tax to their state for online purchases.
Last year, Alabama collected $700,000 in sales tax from people who reported their online purchases, which is only a fraction of what was actually owed. Loss of sales tax revenue affects schools, police and fire protection and other services within a community. Unfortunately, local stores are also hurt by current laws. There is legislation pending in Congress that would establish a national Internet sales tax. States can’t address the issue on their own, because a law passed in one state can’t be enforced on sellers in other states.
Nearly 5 percent of all retail sales, in dollar volume, are online, according to U.S. Census data. The study projects that number to grow about 7 percent each year, and by the end of the decade, as many as one in ten retail purchases will be made online. That means Alabama businesses, including bankers, developers, real estate brokers and others whose business is affected by retail sales, will continue to lose. Meanwhile, states that are home to the Internet sellers win. When Alabamians buy products from California, Colorado, Texas or Florida, that means we ship money straight to those states. Unless their businesses have a nexus in Alabama, our state gets not one cent in taxes. That’s not good for a state that’s broke and badly in need of money with which to fund state government and public education.
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