Pursuant to a congressional request, GAO provided information on the impact of electronic commerce (e-commerce) growth on state and local government sales tax collections, focusing on: (1) how taxes associated with the sale of goods and services over the Internet differ from taxes associated with sales by other remote sellers and in-store sellers; (2) the extent to which each state relies on sales and use tax revenues to fund the services they provide; (3) how much revenue state and local governments are losing this year by not being able to collect sales and use taxes on sales made by all remote sellers and, particularly, by Internet sellers; and (4) how much revenue state and local governments would likely lose in 2003 under various growth scenarios for all remote and Internet sales.

GAO noted that: (1) in-store, Internet, and other remote sales are generally taxed at the same rate by a state or local government; (2) however, compliance rates differ significantly depending on nexus; (3) in-store and remote sellers (including Internet sellers) with a substantial presence, or nexus, with the state are legally required to collect and remit the tax; (4) for sales without nexus, purchasers are themselves legally required to remit the tax, but purchaser compliance is generally much lower than seller compliance; (5) the continued growth of e-commerce is likely to magnify existing compliance problems and, as new types of digital goods and transactions are developed, create new ones, such as identifying the location of a sale; (6) such compliance challenges have led some observers to question the long-term viability of sales and use taxes; (7) states' reliance on general sales taxes--whether measured as a percentage of tax revenues, own-source revenues, or total general revenues--varies considerably across states; (8) little empirical data exist on the key factors needed to calculate the amount of sales and use tax revenues that state and local governments lose on Internet and other remote sales; (9) what information does exist is often of unknown accuracy; (10) GAO constructed scenarios representing different assumptions about the important determinants of the loss; (11) under all of GAO's scenarios, the size of the tax loss from Internet sales for 2000 is less than 2 percent of aggregate general sales tax revenues; (12) under all of GAO's scenarios, the size of the loss from all remote sales is less than 5 percent of aggregate sales tax revenues; (13) the rapid change in the Internet economy makes projections of revenue losses from Internet and total remote sales for future years even more uncertain than they are for 2000; (14) under the scenarios GAO constructed for 2003, the size of the tax loss from Internet sales ranged from less than 1 percent to about 5 percent of projected sales tax revenues; (15) for all remote sales, the corresponding loss ranged from about 1 percent to about 8 percent; (16) the results of GAO's scenarios highlight the importance of developing better data about Internet tax losses and understanding the limits of such data; and (17) some of GAO's scenarios show tax losses that by 2003 could present significant revenue challenges for state and local government officials, while other scenarios produce smaller revenue losses.

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