GAO Report: Tax Dollars Lost on Net Unclear

BOSTON (07/24/2000) - Figuring the total for lost taxes from Internet sales is a murky science, a new U.S. government report released Monday concluded.

The new report from the U.S. General Accounting Office (GAO), the financial auditing arm of U.S. Congress, concluded that U.S. states and localities may be losing anywhere from US$300 million to $3.8 billion in 2000. The new study is part of an ongoing effort to assess the merits and drawbacks of taxing Internet transactions as U.S. law makers debate the issue in Washington.

"There is a whole bunch of parameters that you have to have to come up with a precise number," said James R. White, the GAO's director of tax policy and administration, in a phone interview Monday.

For that reason, GAO officials developed a lower and higher scenario for what is being lost in Internet sales tax, White said. He added that the officials took into account such factors as available estimates of Net sales, tax-exempt products and users and different taxing rates.

The upper scenario conclusion determined that about 2 percent of overall U.S. state and local sales tax would not be captured or roughly $3.8 billion in 2000. The lower scenario came in at $300 million.

White said the GAO officials also forecasted the potential losses in 2003.

Because the Internet is so dynamic right now, the outlook gets even more clouded, he stressed.

The high scenario for 2003 is that U.S. state and local governments could fail to capture $12.4 billion in taxes, while the low scenario is $1 billion, according to White.

The Internet poses new challenges for taxation, such as determining exactly where a product is purchased through a Net transaction, White said. That situation makes it difficult to determine the proper tax rate for the product, he added.

U.S. Senator George Voinovich, a Republican from Ohio, requested the Internet taxation study. Voinovich is a proponent of taxing Net commerce.

The General Accounting Office, in Washington, D.C, can be reached at +1-202-512-6000 or at http://www.gao.gov/.

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