Internet Sales Tax: Why it Matters to Counties

By not charging sales tax, online retailers are using local infrastructure to have their products sold and delivered, but they are not helping to support the cost of that infrastructure.

By Dave Lucas,  NYSAC Director of Finance and Intergovernmental Relations

The growth of the Internet and its ubiquity have changed the face of retail forever. People can buy just about anything, anywhere, at any time of the day. Sleek and easy to use Internet sites also provide an endless array of comparable items to choose from and look, for the same price as your local retailer charges you can get the deluxe version, or maybe even buy two! Better yet, while browsing the Internet on your phone you found a shirt for your cat that says “I'm with Stupid” written in Chinese – while not looking for that specifically, you plunk down $20 bucks to get it on your doorstep tomorrow. It's convenient, easy, Frisky will love it and you do not have to drive in bad weather – let the delivery person deal with it. Technology and innovative business models have created a completely different retail marketplace, and there is more to it than you might think. 
(Find NYSAC's Internet Sales Tax fact sheet and other information here.)

First, local retailers are finding it harder to compete and that impacts the look and vitality of every downtown shopping district, strip mall or giant shopping mall in our communities. Also, counties and other local governments rely on sales tax being collected on all retail transactions to pay for local roads, bridges and other public infrastructure; public safety and health programs; and numerous other quality of life initiatives; as well as to reduce reliance on property taxes.

Unfortunately, for a growing number of these Internet transactions (more than $100 billion annually according to Digital Commerce 360) no sales tax is being collected, which reduces local governmental revenues and puts more pressure on property taxes, while placing local retailers at a competitive disadvantage. The U.S. Government Accountability Office estimates that between $500 million and $900 million annually in sales tax goes uncollected in New York because of these internet-based purchases.  
Everyone likes saving money, and if you can save a little bit by purchasing online because those retailers can offer lower prices, that is fine. But these online retailers should not get an additional competitive advantage on price because they are not charging sales tax, while local retailers are required to charge. These online retailers are using local infrastructure to have their products delivered, but they are not helping to support the cost of that infrastructure. In the cat shirt example, one might find that the cellphone signal received may have been possible because the phone company paid a fee to hang their transmitter on a publicly owned asset like a water tower or public safety radio tower, the shirt probably came in on an airplane that landed at a county-owned airport (let's face it – not likely a cat shirt like that came from a retailer in NYS), and the delivery driver got to the house on local roads and bridges that were freshly plowed and salted by county and local employees because of the snowfall you did not want to drive through in the first place. 
The Governor's budget proposes to update New York's sales tax system to accommodate the fast changing retail marketplace, capture the sales tax that is already owed under state law, and create a more balanced competitive marketplace for local retailers and employers. Counties strongly support this effort. For more on this issue, NYSAC has compiled an Internet Sales Tax fact sheet and talking points, which can be viewed here.