Friday, December 27, 2002

A TASK FOR AN ENTERPRISING BUSINESS REPORTER: Debunk the now-accepted-as-Gospel myth that states "lost" $13.3 billion in revenues from "untaxed" e-commerce last year. An AP story, published in USA Today, my paper and countless others across the country, repeated this bogus factoid. The $13.3 billion figure was derived by University of Tennessee researchers based on e-commerce projections by Forester Research that were, to be charitable, way off. Forester estimated that retail e-commerce transactions would amount to $58.5 billion last year; instead, the total was roughly $30 billion, or half that. I have no clue how accurate the projections were on b-to-b transactions, but I'd be willing to wager they weren't close, either. I'm also not confident in UT's methodology. They estimated that about 28% of e-commerce transactions were "escaping" taxation, but a 1999 study by Ernst & Young concluded that only about 13% of e-commerce is going untaxed. The rest either involves the sale of services or goods (including food and medicine) which would be exempt from sales taxes anyway, or b-to-b transactions which are subject to state use taxes that just aren't being collected. (Jerome Tuccille at FreeMarket.net compiled a lot of this info.)

My point isn't to argue for or against 'Net taxation. After all, the point of "charging" sales taxes to brick-and-mortar retailers is to assess them in part for the costs of streets, police and fire protection, and other government services they use. (Yes, I know, the businesses attempt to pass those costs along to consumers.) In the world of mail-order commerce, however, we should assume that the jurisdictions in which the warehouses, corporate HQs and fulfillment centers are located pay taxes ... so why hit them with multiple levies unless the point is to extract as much money from them as possible? Anyway, we cannot rely on sticky-fingered politicians or the spending interests who benefit from higher taxes to check the accuracy of such reports. So it's up to the press, wonkish types and other gadflies to keep the big-spenders honest ... or at least make sure we're arguing about information which is in some way tied to reality.

Of course, that's easier said than done when reputable news agencies such as the AP allow a fairly important story like this to go out without requiring the reporter (Jim Wasserman, BTW) to revise his estimates of revenue loss based on up-to-date information. His editors should be admonished for letting this howler slip by. To paraphrase DeNiro, "I'll be watching you, Fokkers."

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