The wild growth of online shopping is one of the powerful forces hurting state sales taxes collections.
The recession and the early, brittle years of the economic recovery absolutely shredded state budgets. With growth now returning to healthier levels, this should be a time for relief legislators. Unfortunately, as USA Today reports, they might have to face another sobering reality: The system most states rely on to generate sales tax revenue could become obsolete.
The paper writes that last year, state sales taxes claimed the smallest fraction of overall consumer spending since 1967. Americans paid an average tax of 4.27 percent on purchases, down from 4.63 percent five years before. While overall consumer spending rose 4.7 percent in 2011, collections grew by a mere 1.2 percent.
To put it mildly, this is no good. States are desperate for money. And in parts of the country that lack an income tax, such as Texas and Florida, sales taxes are crucial for funding a basic level of government services.
There are a complicated set of forces dragging down sales tax revenue. But as you might suspect, the growth of of eCommerce is playing a big role. Thanks to a 1992 Supreme Court decision, states can't tax retailers unless they have a physical presence within their borders. That's why Amazon, for instance, has to pay sales tax on purchases made in states where they have offices or warehouses, but not elsewhere. As more consumers shift their shopping to the web, less money goes into state coffers. A 2009 study from the University of Tennessee projected that states would lose as much as $12.6 billion this year due to online shopping.