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South Dakota v. Wayfair opened the door for new collections from online retailers, with several states currently considering plans.
State sales tax collections in the third quarter of 2018 outpaced average levels in recent years, a trend due at least in part to a Supreme Court ruling last summer that cleared the way for states to bring in additional tax revenues from online sales, new research suggests.
Last June, the U.S. Supreme Court in South Dakota v. Wayfair overturned prior rulings that had made it difficult for states to collect taxes on sales by out-of-state, or “remote,” online retailers. States made legislative and regulatory changes in the wake of the case, seeking to ensure they didn’t continue to lose out on these tax dollars.
Research the Urban-Brookings Tax Policy Center published this month shows general state sales tax collections grew 6.5 percent in the third quarter of last year, or 4.1 percent when adjusted for inflation, compared to the third quarter of 2017.
Quarterly year-over-year growth since 2010 has averaged about 4 percent, or 2.3 percent in inflation-adjusted terms.
Last year’s third quarter state sales tax growth rate was the highest recorded in that same three-month time period during any year dating back to 2008, although levels in 2014 were very close and were actually higher by 0.1 percentage point when factoring in inflation.
Weak annual growth rates in sales tax collections in the years since the Great Recession “are at least partially attributable to tax dollars lost by online retail sellers not collecting sales tax on some or all sales,” says the report, authored by senior research associate Lucy Dadayan.
It adds that “the recent gains are mostly attributable to the expansion of the sales tax base in several states and their efforts to capture tax revenues from a larger share of online sales.”
The report notes that at least 38 of 45 states with sales taxes have taken action to require sales tax collections by remote online sellers.
In some state capitals in recent weeks the tax issue has been getting fresh attention.
For instance, New York Gov. Andrew Cuomo is pushing a proposal to ensure sales tax collections by “marketplace providers” that provide platforms for third-party sellers to offer goods .
Cuomo’s plan would also see to it that out-of-state internet retailers with sales over $300,000, or more than 100 transactions, in New York, receive a notice from the state’s tax department reminding them that they are required to collect and submit sales tax.
The governor’s budget plan estimates the changes he's pursuing could yield as much $390 million annually.
A fiscal note attached to the bill estimates it could generate $70 million to $95 million in added general fund revenue annually, but also cautions that these estimates are uncertain due to data constraints.
There’s also been talk in Arkansas about online sales tax legislation.
In November, when Gov. Asa Hutchinson proposed his latest budget, the state's chief economic forecaster, told lawmakers that about $20 million a year in increased internet sales tax collections was factored into it, the Arkansas Democrat-Gazette reported at the time.
Figures for e-commerce activity the U.S. Census Bureau released this week underscore the modest, but fast-expanding segment of the retail sector that online sales have come to occupy.
The estimates show that in the fourth quarter of 2018 online sales accounted for 9.9 percent of total U.S. retail sales after adjusting for seasonal variation. That’s the highest share to date in the agency's figures, up from 6.1 percent in the same quarter five years ago.
Total 2018 online sales were $513.6 billion, an increase of 14.2 percent from 2017, the Census Bureau estimates also show. Overall retail experienced an uptick of just 4.8 percent.
The National Association of State Budget Officers in its most recent fiscal survey of states made note of how some states were factoring expected internet sales tax revenue increases into their fiscal year 2019 budgets in response to the Wayfair ruling.
Illinois incorporated $150 million and Michigan $203 million in additional sales tax revenues. Those aren’t trivial sums, but still only a slice of those states’ general fund spending, which in fiscal 2019 is expected to be around $35 billion and $10 billion respectively.
Bill Lucia is a Senior Reporter for Route Fifty and is based in Olympia, Washington.