	Background

Forty-five states and the District of Columbia levy sales taxes on the sale  of goods and services. In 1992, the U.S. Supreme  Court ruled in Quill v. North Dakota that a state can only require a  business to collect and remit sales tax if the business has substantial  presence, referred to as nexus, in that state. However, the decision  stated that Congress could pass legislation to overrule the Quill decision. In general, under present law in states with sales taxes, if the seller does  not have nexus in a state, and is therefore not required to collect tax, then  the consumer is required to pay a use tax in the same amount. Taxes are Collected on Most Remote Sales, but States Could Gain Additional Revenue with the Authority to Require All Businesses to Collect Taxes

		State and Local Governments Are Able to Collect Taxes on More Than Half of Sales

We estimate that state and local governments can, under current law,  require remote sellers to collect about 75 to 80 percent of the taxes that  would be owed if all remote sellers were required to collect tax on all  remote sales at current rates. We found that the extent to which state  and local governments can, under current law, require businesses to  collect taxes on remote sales varies with the type of remote seller (as  shown in table 1). Potential Revenue Gain across All States for 2017 is about $8 billion to $13 billion Based on our Low and High Scenario Estimates

Based on the seller collection rates we estimated using high and low  scenarios to illustrate the effect of underlying uncertainties, we  determined that state and local governments could potentially gain about  $8 billion based on our low scenario to about $13 billion, based on our  high scenario, in 2017 if they were given expanded authority to require  sales tax collection from all remote sellers. In aggregate, our national estimate of about $8 billion (low scenario) to  about $13 billion (high scenario) represents about 2 to 4 percent of total  state and local government general sales tax revenues. Some Businesses Would Likely Incur Several Types of Costs If Required to Collect Taxes on All Remote Sales

We identified various costs associated with typical steps involved in  multistate sales tax collection. Attorneys told us that state revenue departments also employ other low- cost enforcement tools that create compliance costs. Federal legislation allowing states to tax  remote sales have included a variety of small business exemptions. States Generally Do Not Anticipate Major Administrative Costs or Challenges If Given the Authority to Require Businesses to Collect Tax on All Remote Sales

Actions by state and local governments to increase tax collections on  remote sales could require additional government resources to administer  sales taxes. State revenue agency officials, as well as representatives  from the Federation of Tax Administrators and other state government  organizations we interviewed, did not identify any major increases in  administrative costs or significant administrative challenges if states were  given the authority to require businesses to collect taxes on all remote  sales.
Why GAO Did This Study

Over the past two decades, e-commerce sales have grown rapidly, greatly expanding a category of sales known as remote sales. Under current law, states cannot require all businesses to collect taxes on remote sales. Congress has been considering proposals to change this. Little current, nationwide information exists to inform the debate.
In this report, GAO (1) estimated revenue states and localities could gain by being able to require businesses to collect taxes on all remote sales, and (2) described what is known about the related compliance costs and challenges to businesses, and administrative costs and challenges to states.
GAO estimated 2017 revenue gains to state and local governments based on actual and estimated sales data for remote sellers, excluding certain sales that were exempt from taxation or already collected by remote sellers with a substantial presence in a state. Ranges for GAO's estimates were based on a number of key assumptions that were varied based on available data. To describe related costs and challenges to businesses and states, GAO interviewed officials from state revenue agencies, subject matter specialists, and a wide variety of retailers with remote sales and the organizations that represent them.
GAO provided a draft of this report to subject matter specialists who agreed with the general approach that GAO followed in making its estimates.

What GAO Found

Forty-five states and the District of Columbia levy taxes on the sale of goods and certain services, including those sold remotely, such as over the Internet. In 1992, the Supreme Court ruled in Quill v. North Dakota that a state can only require a business to collect and remit sales tax if the business has substantial presence, referred to as nexus, in that state. However, the decision stated that Congress could pass legislation to overrule this limitation. In general, under present law, if a seller does not have nexus in a state, and therefore does not collect tax, then a purchaser is required to pay a use tax in the same amount to his or her state government.
GAO estimated that state and local governments can, under current law, require remote sellers to collect about 75 to 80 percent of the taxes that would be owed if all sellers were required to collect tax on all remote sales at current rates. GAO found that the extent to which state and local governments can require businesses to collect taxes varies with the type of remote seller and by state.
GAO estimated that state and local governments could gain from about $8 billion to about $13 billion in 2017 if states were given authority to require sales tax collection from all remote sellers. This is about 2 to 4 percent of total 2016 state and local government general sales and gross receipts tax revenues.
Some businesses would likely see increases in several types of costs if required to collect taxes on all remote sales. These costs would be higher for businesses not currently experienced in multistate tax collection. Officials from state revenue departments told us that they generally do not anticipate major administrative costs or challenges if given the authority to require businesses to collect tax on all remote sales.

What GAO Recommends

GAO is not making recommendations in this report.