States Most In Need of an eCommerce Sales Tax

An eCommerce Sales Tax Solution?

In the wake of the recession, unprecedented budget gaps are pushing state governments to make difficult reductions in spending - from education cuts and worker furloughs to state-wide "garage sales" - to make up for revenue shortfalls. One point of contention is how cross-border sales taxes are collected. In some states, if a retailer sells merchandise via their website or catalog, but has no physical presence in the state, no sales tax is collected. Recently, the National Conference of State Le
Source: National Conference of State Legislatures || Photo: Jose Luis Pelaez | Photodisc | Getty Images

In the wake of the recession, unprecedented budget gaps are pushing state governments to make difficult reductions in spending - from education cuts and worker furloughs to state-wide "garage sales" - to make up for revenue shortfalls.

One point of contention is how cross-border sales taxes are collected. In some states, if a retailer sells merchandise via their website or catalog, but has no physical presence in the state, no sales tax is collected. Recently, the National Conference of State Legislatures (NCSL) conducted a state-by-state analysis that takes a look at which state budgets would be most affected if these taxes were implemented. According to the NCSL, some states could cover significant portions of their budget gaps - even swing into surplus - if they put this tax in place.

However, it is a contentious issue. "The Main Street Fairness Act," which is expected to be proposed in Congress this summer, would require the payment of state sales tax regardless of whether a retailer has a physical presence in that state. The bill faces challenges - including a 1992 Supreme Court ruling and Constitutional concerns regarding the Interstate Commerce Clause - but also carries the possibility of closing a major tax loophole for cash-strapped states. The basic idea is to "level the playing field" for competition between bricks-and-mortar stores, who must collect sales taxes on every purchase, and online retailers like Amazon.com and eBay, who don't necessarily have to. There also exists the potential for cross-state economic conflicts and concerns about whether this type of taxation would go too far.

But in this environment, which states stand to collect the most from a cross-border sales tax, relative to their budget gaps? Click ahead to find out!

By Paul Toscano & Krystina Gustafson
Posted 14 May 2010

10. Ohio

Uncollected sales tax: 40% of gap Potential sales tax revenue: $628.6 million 2010 estimated budget gap: $1.57 billion General state sales tax: 5.5% Internet connected households: 2.7 million (58.6%)
Photo: Altrendo travel | Getty Images

Uncollected sales tax: 40% of gap
Potential sales tax revenue: $628.6 million
2010 estimated budget gap: $1.57 billion

General state sales tax: 5.5%
Internet connected households: 2.7 million (58.6%)

9. Tennessee

Uncollected sales tax: 42.1% of gap Potential sales tax revenue: $748.5 million 2010 estimated budget gap: $1.78 billion General state sales tax: 7% Internet connected households: 1.33 million (53.51%)
Photo: Jeremy Woodhouse | Getty Images

Uncollected sales tax: 42.1% of gap
Potential sales tax revenue: $748.5 million
2010 estimated budget gap: $1.78 billion

General state sales tax: 7%
Internet connected households: 1.33 million (53.51%)

8. Indiana

Uncollected sales tax: 45.4% of gap Potential sales tax revenue: $398.8 million 2010 estimated budget gap: $877.8 million General state sales tax: 7% Internet connected households: 1.49 million (58.1%)
Photo: Cathlyn Melloan | Getty Images

Uncollected sales tax: 45.4% of gap
Potential sales tax revenue: $398.8 million
2010 estimated budget gap: $877.8 million

General state sales tax: 7%
Internet connected households: 1.49 million (58.1%)

7. West Virginia

Uncollected sales tax: 48.5% of gap Potential sales tax revenue: $103.3 million 2010 estimated budget gap: $213 million General state sales tax: 6% Internet connected households: 369,000 (49.11%)
Photo: Joe Sohm | Visions of America | Getty Images

Uncollected sales tax: 48.5% of gap
Potential sales tax revenue: $103.3 million
2010 estimated budget gap: $213 million

General state sales tax: 6%
Internet connected households: 369,000 (49.11%)

6. Texas

Uncollected sales tax: 53.9% of gap Potential sales tax revenue: $1.77 billion 2010 estimated budget gap: $3.3 billion General state sales tax: 6.25% Internet connected households: 5.04 million (57.31%)
Photo: Jeremy Woodhouse | Getty Images

Uncollected sales tax: 53.9% of gap
Potential sales tax revenue: $1.77 billion
2010 estimated budget gap: $3.3 billion

General state sales tax: 6.25%
Internet connected households: 5.04 million (57.31%)

5. South Dakota

Uncollected sales tax: 69% of gap Potential sales tax revenue: $60.8 million 2010 estimated budget gap: $88.1 million General state sales tax: 6% Internet connected households: 197,000 (60.8%)
Photo: Glen Allison | Photodisc | Getty Images

Uncollected sales tax: 69% of gap
Potential sales tax revenue: $60.8 million
2010 estimated budget gap: $88.1 million

General state sales tax: 6%
Internet connected households: 197,000 (60.8%)

4. Alabama

Uncollected sales tax: 81.8% of gap Potential sales tax revenue: $347.7 million 2010 estimated budget gap: $425 million General state sales tax: 4% Internet connected households: 930,000 (49.81%)
Photo: Walter Bibikow | The Image Bank | Getty Images

Uncollected sales tax: 81.8% of gap
Potential sales tax revenue: $347.7 million
2010 estimated budget gap: $425 million

General state sales tax: 4%
Internet connected households: 930,000 (49.81%)

3. Mississippi

Uncollected sales tax: 87.3% of gap Potential sales tax revenue: $303.2 million 2010 estimated budget gap: $347.1 million General state sales tax: 7% Internet connected households: 523,000 (45.97%)

Uncollected sales tax: 87.3% of gap
Potential sales tax revenue: $303.2 million
2010 estimated budget gap: $347.1 million

General state sales tax: 7%
Internet connected households: 523,000 (45.97%)

2. Missouri

Uncollected sales tax: 110.8% of gap Potential sales tax revenue: $113.9 million 2010 estimated budget gap: $388 million General state sales tax: 4.225% Internet connected households: 1.34 million (56.13%)
Photo: Getty Images

Uncollected sales tax: 110.8% of gap
Potential sales tax revenue: $113.9 million
2010 estimated budget gap: $388 million

General state sales tax: 4.225%
Internet connected households: 1.34 million (56.13%)

1. Arkansas

Uncollected sales tax: 113.9% of gap Potential sales tax revenue: $113.9 million 2010 estimated budget gap: $100 million General state sales tax: 6% Internet connected households: 585,000 (51.20%)
Photo: Joe Sohm | Visions of America | Getty Images

Uncollected sales tax: 113.9% of gap
Potential sales tax revenue: $113.9 million
2010 estimated budget gap: $100 million

General state sales tax: 6%
Internet connected households: 585,000 (51.20%)