The Truth About Online Sales Taxes At The State Level: The DMA Releases State-by-State Data Demonstrating "No Pot of Gold"

Media Contact: Louis Mastria 212.790.1529 Lmastria@the-dma.org

NEW YORK, April 11, 2003 – The Direct Marketing Association (The DMA) today announced the release of a new analysis, based on U.S. Department of Commerce data, demonstrating that previous proclamations about the amount of potential tax losses in each state due to online sales were wildly overstated.

The new DMA study concludes that the potential tax revenue lost to states is approximately only 10 percent of the total that other studies have claimed.

The DMA's state-level breakout, which is produced by The DMA using U.S. Department of Commerce Data, contrasts significantly with figures reported by the states, by more than tenfold. For example, the new DMA analysis shows that in 2011, the states would have received from a low of $7.2 million, for Vermont, to a high of $592.8 million for California. By contrast, the state governors have been erroneously reporting that in 2011, Vermont would stand to gain $87 million and California a whopping $7.225 billion. See attached chart.

"Clearly, the governors have used these hyper-inflated numbers to manufacture a political crisis because they are trying to lobby Congress to effectively overturn 227 years of Interstate Commerce Clause law," said H. Robert Wientzen, president & CEO, The DMA. "Our new analysis demonstrates again that – despite what a lot of state politicians are claiming – there is no pot of gold for the states in creating new burdens for remote retailers," Wientzen said.

"It is imperative that if Congress considers overturning the long and successful history of the Interstate Commerce Clause, thereby inflicting harm on American consumers and businesses, it do so based on facts derived directly from an institution like the U.S. Department of Commerce," said Peter A. Johnson, Ph.D., senior economist, The DMA.

The governors have relied on much-cited studies from the University of Tennessee that erroneously relied on data from the Internet boom years and made flawed assumptions about e-commerce that resulted in their vast over-estimates. Among these were:

• Internet growth rates of 38 percent annually – which might have seemed plausible during the dot.com bubble era, but which subsequent economic experience has invalidated.
• Failure to separate B-to-B Internet activity from pre-existing B-to-B e-commerce
• Excessively low rate of business compliance on sales tax remittance
• Failure to note decline of "pure-play" e-tailing in favor of bricks-and-clicks

"While the issue of state budget deficits is real, federal policymakers should not be misled into thinking that the states’ fiscal crisis was caused by uncollected remote sales taxes," Wientzen said. "Even the states know this because they were looking for the extraordinary grant of authority that would allow them to force out-of-state retailers to become their tax collectors even during recent past times when they were running record budget surpluses."

The DMA is the leading trade association for businesses interested in interactive and database marketing, with nearly 4,700 member companies from the United States and 53 other nations. Founded in 1917, its members include direct marketers from every business segment as well as the nonprofit and electronic marketing sectors. Included are catalogers, Internet retailers and service providers, financial services providers, book and magazine publishers, book and music clubs, retail stores, industrial manufacturers and a host of other vertical segments, including the service industries that support them. According to a DMA-commissioned study, direct and interactive marketing sales in the United States are projected to have surpassed $2 trillion in 2002, including $126 billion in catalog sales and $34 billion in sales generated by the Internet. The DMA's Web site is www.the-dma.org, and its consumer Web site is www.shopthenet.org. For more information about remote sales tax collection, please visit www.the-dma.org/taxation/.

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