Of the nearly $13 billion in taxable retail goods sold online in 1999 in the US, only 20% was taxed by the states. According to a new Brief from Forrester Research (Nasdaq: FORR), although $140 million in taxes were collected from online purchases, $525 million was left on the table. The five states that lost the greatest amount of online sales tax revenue were: California, which lost $73.8 million; Texas, $51.9 million; Illinois, $32.6 million; Florida, $30.3 million; and New York, $26.6 million.

“If left as is, taxation issues will only get worse as online retail sales grow to $184 billion in 2004,” said James L. McQuivey, research director of Technographics® Data & Analysis. “Ironically, only 22% of the 8,900 online consumers surveyed shop around to avoid paying sales taxes online. Shipping charges, on the other hand, are much more important than taxes.”

“For several reasons, Forrester believes that Internet, catalog, and brick-and-mortar sales should all be taxed the same — based upon a buyer’s physical location. New technology will enable companies to easily collect taxes across multiple locations,” said Steven J. Kafka, analyst, eBusiness Trade Research. “Also, retail taxes won’t keep consumers from shopping online because they seek convenience, selection, and added services — not a tax break. Finally, state governments will not relinquish potential revenue from tax dollars to retailers and consumers.”

To better understand constituents’ attitudes regarding online taxation, as well as ways of resolving the battle over Internet taxation, Forrester has written two Briefs. For “States Lose Half A Billion In Taxes To Web Retail,” Forrester calculated 1999 sales taxes earned and lost for each state and surveyed 8,900 online purchasers to find out how much they care about avoiding sales taxes online. “Internet Sales Taxes Don’t Need A Tea Party” explores the current Internet taxation policy and how Forrester expects it to change in the future.

About Forrester’s Internet Policy & Regulation Research
To track the intersection of the Internet economy and public policy, Forrester Research recently launched its newest lens, Internet Policy & Regulation Research. This lens will analyze government’s role in the development of the Internet economy and the impact of technology on government administration and electoral politics.