E-Commerce’s Cost to Governments Detailed

Ernst & Young today will release a report saying that online commerce has cost state and local governments across the country a total of $170 million in tax revenue.

The firm points out that most of the $20 billion of electronic commerce last year occurred between businesses, which are not subject to sales tax. Also, 63% of current e-commerce involves services or products that are exempt from sales tax, such as groceries.

Much of electronic commerce is a substitute for sales to other catalog sellers, which also would not be taxed, the report said.

The $170 million in lost sales taxes last year amounts to less than one-tenth of 1% of total state and local government sales and use taxes collected, although the firm acknowledged that online sales are projected to increase exponentially.