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Cyber sieve
Localities face a steep loss of revenue unless they tax Internet sales

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Visit the Photo Place
Date published: 11/30/2012

A RECORD-SETTING "Cyber Monday," with online sales more than 30 percent greater than the typical day, must have state officials across the country longing for the tax revenues that could have been.

It's not news that states have lamented their limited ability to collect sales taxes from online sales. But as online shopping grows in popularity--taking a measurable bite from old-fashioned brick-and-mortar stores--that revenue longing will turn to despair.

Currently, online sales represent just 10 percent of all holiday shopping, but the cyber slice of the pie is growing every year. The National Retail Federation estimates that Internet sales in November and December will rise 4.1 percent this year, to $586.1 billion.

State sales tax rates are all over the map, from zero in five states to a high of 7.25 percent on each dollar spent in California. At a typical 5 percent rate such as Virginia's, that's a whopping $29.3 billion in revenues across the country not being collected.

For years, Virginia has called on taxpayers to calculate unpaid sales taxes from online purchases when filing their state income taxes. Their tax bill increases, or their refund decreases, by that amount. The number of taxpayers who don't bother to figure that out--knowing the improbability of repercussions--is anybody's guess. It probably rounds off to 100 percent.

The obvious answer is to require sellers to collect sales tax and turn the funds over to respective purchasers' states. But that sets up an accounting nightmare for retailers, particularly small-time online sellers.

Certainly the big-time outfits like Amazon could figure it out with the help of some ingenious software. It's not hard to imagine a program that, with the push of a button, would track the origin of a sale, calculate the sales tax, and allow the seller to charge and then pay the appropriate state from a pre-established account.

The payoff could bring billions in new revenue to depleted state coffers.

But it's not just state governments that stand to suffer. Industries of all kinds--newspapers included--have wrestled for years with how to mitigate the historic "free"dom of all things Internet. Unless government and industry come up with alternative income sources, the ongoing and increasing loss of these revenues will become critical.

The sooner users understand that they can't escape taxes and other costs simply by going online, the better.