Economic Analysis of Tax Revenue From E-Commerce In Ohio

We live in a time of dramatic economic change. The most dramatic changes come from technological and social innovations and our responses to them. The internet exemplifies this type of innovation. Its growth has given consumers new options for comparing and buying goods and services, and a new term has been coined for this field of business activity: e‐commerce.

As with most innovations, e‐commerce has created new challenges for public regulatory and tax policy. Legal and practical considerations limit the ability of governments to collect taxes, particularly with the sales tax, which is administered and collected by state and local governments. This issue becomes increasingly important as e‐commerce captures a greater percentage of consumer purchases. Our client, Focus on Ohio's Future, asked the Economics Center to provide an impact analysis on e-commerce has on Ohio's economy.

Report Highlights

This study provides several insights about the impact that e‐commerce is having on Ohio’s economy.

Based on reviews of two important studies, and application of their analyses to the latest data for the State of Ohio, this study arrives at four principal findings.

• 1. The avoidance of Ohio sales and use tax obligations by online consumers is resulting in a tax revenue shortfall within Ohio of more than $200 million in 2011 and a total of $1.1 billion for 2007 through 2012.
• 2. To the extent that these online transactions are motivated by the opportunity to avoid paying sales tax, they also have a negative effect on store‐based retail sellers (store retailers), which is estimated at more than $600 million in 2011 because of the lack of tax collections for internet retail transactions.
• 3. A mechanism that would achieve tax parity between store retail and internet retail sales within Ohio could result in a recapture, based on 2011 data, of 11,000 direct retail jobs, which are among almost 15,000 total jobs from the spending and re‐spending that would circulate from store retailers through Ohio’s economy.
• 4. These figures imply a decrease in total commercial rents of $10 million annually, which represents decreases in commercial property values of $120 million. These decreases in values may lead to further reductions in property tax revenue for communities and school districts.

Currently, consumers often receive less information about the taxes they owe for online purchases than they do for store purchases. The practicality of assigning responsibility for sales tax collection to internet retailers rather than to consumers has certainly increased since the early days of the internet.

Our findings indicate that applying the more efficient tax collection method that is used for store purchases would provide substantial revenue to the state without raising tax rates.

Media & Press Coverage

Study: Online shopping costs Ohio millions