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North Carolina not alone: Most states miss the mark with internet sales tax collections

For years, budget experts have forecast billions of dollars in new revenue if state could just get online retailers to collect sales taxes like their Main Street counterparts. The National Conference of State Legislatures projected North Carolina would raise $426 million a year. Since companies started collecting sales tax for sales into North Carolina, projections have been trimmed to $120 million a year, just 28% of what was expected.

The National Taxpayers Union says North Carolina’s experience is not unique. States across the country that have imposed new taxes on internet-based sales have been disappointed by their results. The largest internet retailers, like Amazon, Wal-Mart, and Apple, already collected sales taxes. North Carolina’s rule hurts small businesses outside of the state and leaves North Carolina retailers vulnerable to collecting sales taxes for other state and local governments on even a small number of sales. NTU concludes

The urgency that states felt to eliminate Quill, and the reasoning that a bare majority of the Court eventually concurred with in Wayfair, was based upon overblown and inaccurate estimates. The revenues that states based their hopes upon (themselves not all that significant relative to state budgets) have failed to materialize.

It is unfortunate, therefore, that states have been so reckless in their implementation of economic nexus taxes. Despite the apparent harm to small and medium-sized businesses that were unprepared to take on a massive new compliance burden, many states made quick implementation of economic nexus rules a top priority in order to capture as much revenue as possible.

Now that revenue estimates are approaching reality, states with economic nexus laws should consider revisiting their laws to take the concerns of small businesses more seriously. And states considering new economic nexus laws should beware: the promised revenues may not deliver as expected.

Fortunately, the General Assembly can still rein in the Department of Revenue’s unilateral edict.

Joseph Coletti / Senior Fellow

Joe Coletti is a senior fellow at the John Locke Foundation focused on fiscal policy issues. He previously headed the North Carolina Government Efficiency and Reform initiativ...

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