June 21, 2013

Report: Untaxed Internet retail sales cost Wichita, Sedgwick County $10.5 million over 3 years

Wichita and Sedgwick County have lost $10.5 million in tax revenue over the past three years to untaxed e-commerce, according to a national report released Friday.

Wichita and Sedgwick County have lost $10.5 million in tax revenue over the past three years to untaxed e-commerce, according to a national report released Friday.

The report concludes that the rapid growth in untaxed Internet sales has eroded the sales tax base across U.S. cities and counties. “U.S. Metro Economies: Impact of ‘Marketplace Fairness’ on Select Jurisdictions” was prepared for the U.S. Conference of Mayors, the National Association of Counties and the National League of Cities.

The report measures lost revenue in the Wichita metropolitan statistical area, which includes Sedgwick, Harvey, Butler and Sumner counties.

The lost tax revenue in the other three counties since 2011:

• Harvey: $1.221 million
• Butler: $370,000
• Sumner: $261,000

Wichita Vice Mayor Pete Meitzner said the issue isn’t on the city council’s radar, but “probably should be.”

“If you’re talking $3.5 million a year, then sure it’s worth taking a look at,” he said.

Sedgwick County Commissioner Tim Norton said Friday he hasn’t seen the report, but he wants the county to take a hard look at it.

“It doesn’t surprise me,” he said. “I think we need to understand what our portion of that number would be. I certainly think we need to understand the implications of this issue and if there is a movement to tax e-commerce, what does that mean to us.”

The U.S. Conference of Mayors is supporting a national move to tax Internet sales, said the group’s incoming president Scott Smith, mayor of Mesa, Ariz., because the booming online retail market has hit Main Street – and cities’ tax bases – hard.

“We believe that the way our city financing systems are set up, based on the ability to tax commercial transactions, that with the change in the economy moving to Internet-based, it has eroded a huge base of tax money out of our economies,” he said.

“While revenue has disappeared from our cities, the demand for our services remains great. We’ve seen Main Street business close due to Internet competition, retail activity decline but Internet sales have increased. We believe the time for the exemption has passed, and if we’re going to base our revenue collection on sales taxes, everybody needs to be in the system.”

More than $225 billion in e-commerce transactions were recorded in the U.S. in 2011, the report indicates, with nearly $12 billion in lost taxes that year. The latter figure is projected to be almost $14 billion this year.

Smith said there are some unavoidable methodological holes in the study: Officials acknowledge that some Internet retail sales “escape the radar,” he said. They also acknowledge site-to-store Internet sales in stores like Wal-Mart and Best Buy are included in the study, although those sales are taxed upon pickup.

“But when you add in the sales that escape the radar, and subtract the sales that are taxed even though they begin online, it’s still clear that the sales not taxed are well into the millions,” he said.

The study found that New York City suffered the greatest revenue loss in 2012 at more than $205 million, forecast to rise to $235 million this year.

Among counties, Los Angeles County lost $70 million in 2011, and Cook County, Ill., lost $42 million.

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