Local Politics

State chasing lost tax revenue from online sales

Posted November 30, 2009 5:54 p.m. EST
Updated November 30, 2009 7:09 p.m. EST

— Some tax experts estimate online shopping will cost North Carolina more than $140 million in sales tax revenue this year, prompting state officials to call for Congress to end the online tax break nationwide.

Although everyone is required to pay sales tax on purchases, online firms that don't have an operation in North Carolina aren't required to collect tax from state residents.

"It's not fair," said Rita Saad, of Garner TV and Appliance, who notes that out-of-state competitors have a sales advantage that she can match only on the state's annual tax-free weekend.

The loss of sales tax revenue becomes more acute as online shopping expands. For example, last Friday, a day traditionally dedicated to in-store shopping, saw people spending 35 percent more, on average, than they did a year ago for Internet-based sales, according to Coremetrics, a Web marketing analysis firm.

The average order is now $170, which would translate into $9.77 in lost taxes for North Carolina.

The state Department of Revenue has started cracking down on companies with North Carolina sales brokers, Revenue Secretary Kenneth Lay said. In January, the state will start charging sales tax for many online downloads.

"You're getting by for now, but we are coming after those organizations that aren't paying taxes," Lay said.

Consumers are supposed to settle up their online sales tax tab on their personal income tax returns, but Lay and other officials acknowledge that most people don't. The state collected just $5.5 million from such voluntary reporting this year.

"I know it's hard to make yourself pay that extra money," Gov. Beverly Perdue said.

Perdue said Congress needs to step in to even the playing field.

"I think it's got to be some kind of federal mandate," she said. "I can do it piece by piece, but it's tough in North Carolina to be the only state and the only governor trying to enforce it."