NCPA - National Center for Policy Analysis

Internet Sales Are Another Form Of Mail Order

December 15, 1999

The Supreme Court has ruled businesses need only collect sales taxes for states in which they have a physical presence. But delivery charges often negate any tax advantage from mail order sales.

In fact, mail order sales have never amounted to more than a small share of all retail purchases.

  • According to the National Mail Order Association, consumer mail order sales amounted to just $185 billion in 1998.
  • With all retail sales at more than $2.7 trillion, according to the Department of Commerce, mail order represented less than 7 percent.
  • Of that, Internet sales accounted for just $5.6 billion, according to NMOA.

It is impossible to say what percentage of mail order sales did not pay state sales taxes. Many of the nation's largest mail order sellers have a physical presence in most states and therefore collect sales taxes on behalf of the state in which the consumer resides.

But some of the fastest growing Internet retailers have no physical presence outside their home state, and thus collect no sales taxes. Clearly it is not fair for local retailers to be forced to charge local sales taxes when a consumer can buy the identical good tax free on the Internet.

However, competition from the Internet is probably less than retailers imagine, because the Internet is merely an extension of mail order sales. There is no reason to believe Internet sales will grow much beyond the current level of mail order sales, and they will probably grow mainly at its expense. Also, the fastest growing segment of Internet sales are business-to-business sales that are untaxed in all states.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, December 15, 1999.

 

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