TRENTON – New Jersey is losing hundreds of millions of dollars a year in sales and use tax revenue to out-of-state internet-based sales, according to a new report.
The study, conducted by the Edward Bloustein School of Planning and Public Policy, estimated that if residents were paying those taxes on such sales, it could lead to 1,442 jobs, $44 million in income, and $95 million in gross domestic product annually.
The study was commissioned by the N.J. Retail Merchants Association, which believes the trend, if unchecked, will continue to harm the state’s economy, especially in a stubborn recession.
John Holub, president of the Retail Merchants Association, said this represents “an unfair 7 percent advantage over bricks and mortar retailers.’’
He emphasized the association is not calling for any new tax or tax hike. They are calling on policymakers to ensure that online retailers cannot exploit loopholes.
Out-of-state online retailers who lack a physical presence in the state have not been assessing a sales tax. The burden falls on the purchaser to pay a use tax.
The Merchants Association is a non-profit, 44-year-old association with 3,500 members that expects the rate of internet-based shopping will accelerate in the coming years.
Among the report’s findings:
* In 2009, New Jersey lost between $52 million and $171 million due to non-payment of sales and use taxes on e-commerce transactions with out-of-state vendors;
* In 2008, the state missed out on $158 million in tax revenue on out-of-state purchases;
* By one economic measure, in 2009 the state lost out on $608 million in sales and use tax revenue, a combination of out-of-state purchases and business-to-business transactions;
The report points out that under the state’s tax code, companies that sell taxable goods to N.J. residents over the Internet are only required to collect a sales tax if the seller has a physical presence in the state. If the company is based elsewhere, the buyer is supposed to pay a use tax directly to the state.
The Bloustein study found that in New Jersey, e-commerce sales in 1997 totaled $300 million, and had increased by 2010 to $5.6 billion.
That was in comparison to total retail sales in the state in 1997 of $79.9 billion and in 2010 of $120.6 billion. The report said that e-commerce in 1997 represented .4 percent of the overall total and had risen by 2010 to 4.7 percent of the overall retail sales figure.
In illustrating how New Jersey is particularly hard hit by lost e-commerce tax revenue, the report stated that e-retail grew in the state from 2002 to 2010 by 367 percent compared to a rate of growth nationwide of 267 percent.
“This accelerated rate of E-retail growth is likely attributable, at least in part, to New Jersey’s high level of broadband penetration, which at 12% of households in 2001 and 72% in 2009, is among the highest in the nation,” the report found.