Sunday, February 25, 2001

Tax-free online sales could hurt state

The Associated Press

        FRANKFORT — If the rapid growth of online sales continues, state coffers will suffer, according to a new study.

        The Kentucky Long-Term Policy Research Center study says a tax-free Internet could lower state revenue by up to $187 million between 1999 and 2004.

        Nearly a third of Kentuckians make online purchases, but almost no one pays sales tax for them.

        “The growth of online commerce could have serious implications for the state budget, as millions of dollars in unpaid use taxes are lost,” the report said.

        The number of Kentuckians who have bought something online increased dramatically last year, rising to 32 percent from 18 percent in 1999, according to the study.

        Most online purchases are not taxed because companies that don't have a physical presence within a state aren't required to collect sales taxes in that state.

        That doesn't absolve individuals from paying Kentucky's 6 percent sales tax, but most people simply don't bother.

        Citizens of the commonwealth are supposed to pay a “use” tax on items purchased from a company located outside Kentucky, but 60 percent of those surveyed had never even heard of the tax.

        Kentucky could lose between 0.3 percent and 2 percent of the $2.85 billion in sales taxes it expects to collect in 2004.

        The actual cumulative dollar losses from 1999 to 2004 are $27 million on the low end and $187 million on the high end.


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