Cities Lose Billions in Tax Revenue from Online Sales

The inability of cities and local jurisdictions to collect existing sales taxes on Internet sales translates into billions of dollars in lost revenue, according to a new report from the U.S. Conference of Mayors that found New York City, Phoenix and Chicago to be the top money-losing cities.

Among cities, New York City experienced the greatest loss in 2012 of over $205 million. Phoenix and Chicago followed with losses of $18 million and $17 million respectively. These are forecast to rise to $235 million for New York, over $20 million for Phoenix, and over $19 million for Chicago in 2013, according to the report, which was prepared by the research firm HIS Global Insight. The report examines the federal Marketplace Fairness Act, which was passed by the Senate, but awaits action in the House. The bill would allow state and local governments to enforce existing state and local sales and use tax laws on remote retailers so long as they simplify tax administration by adopting the Streamlined Sales and Use Tax Agreement.

Done in conjunction with the National League of Cities and the National Association of Counties, the report was released on Friday, at the 81st Annual Meeting of the United States Conference of Mayors where nearly 200 mayors gathered for a four-day session led by Conference President and Philadelphia Mayor Michael Nutter and host Las Vegas Mayor Carolyn Goodman.

“We are encouraged that the Senate found a bipartisan way to pass the Marketplace Fairness Act. Now we need the House to move this important legislation,” Nutter said in a statement. “Passage of this measure would be a victory for basic common sense and bipartisanship, and a win for local governments and for businesses everywhere. This legislation finally levels the playing field by requiring all merchants, whether they sell over the counter on Main Street or over the Internet, to collect the same taxes. With federal funds to local governments dwindling and few other sources available to municipal leaders for raising revenue, this measure will provide a badly needed funding stream so we can better serve our residents from fixing crumbling roads and bridges to funding schools and first responders to maintaining and upgrading water systems. And during these tough economic times, the Marketplace Fairness Act will give a fundamental boost to metropolitan economies by helping to stimulate growth and create jobs.”

The report provides estimates of the sales tax revenue losses for e-commerce in 2011, 2012 and 2013 across select U.S. cities and counties in the absence of the Act. The report’s estimates do not cover non-e-commerce remote sales from such sources as catalogs.

The report found that over $225 billion in e-commerce transactions were recorded in the U.S. in 2011. Collectively, state and local governments experienced a direct loss of revenues due to uncollected taxes on e-commerce of nearly $12 billion in 2011, rising to nearly $14 billion by 2013.

The counties and cities tabulated in the report suffered a loss of nearly $1.3 billion in 2011, $1.5 billion in 2012, and a projected $1.7 billion in 2013. The three-year total of losses for these counties and cities is estimated at $4.5 billion.

Eleven cities are projected to lose over $10 million each in 2013, including New York, Phoenix, Chicago, Dallas, Philadelphia, Oklahoma City, Memphis, Nashville, Los Angeles, Houston and Denver. Over the three-year period, these 11 cities will lose a cumulative total of $974 million.

Among counties, Los Angeles and Cook County, Ill., experienced the greatest losses at over $70 million and $42 million in 2011. King County, Wash., followed with a loss of $30 million; Westchester County, N.Y., lost nearly $26 million.

In 2013 Los Angeles County is forecast to lose over $95 million; Cook County, over $55 million; King County, over $41 million and Westchester County over $35 million. Collectively, these four counties alone are projected to lose over $227 million in 2013. In ten counties, the cumulative three-year 2011-2013 revenue loss is $881,670.

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