DMA Disputes "Lost Taxes" Numbers

DaveAtFraud writes "The Direct Marketing association (DMA) has released a study (PDF only) showing that the amount of tax revenue supposedly 'lost' by the states due to on-line sales has been significantly overstated. Proponents of online taxes quote several University of Tennessee studies which found states missed out on $13.3 billion in 2001 collections. In contrast to UT's claim, the DMA's study says the figure was closer to $1.9 billion. And while UT finds states could be stiffed by $55 billion in 2011, the DMA claims it's more like $4.5 billion. You get the picture (I wonder where UT gets its funding? It wouldn't be the state of Tennessee by any chance would it?). The DMA study points out flawed growth assumptions and outright falsehoods (e.g., counting certain business-to-business transactions that actually did create tax revenue for the state in its count of missed taxes) in the UT studies that cast a shadow of doubt on the UT studies' validity."

Bias

[_Splat]

For all the claims of UT being biased, realize that the DMA has a significant interest in there NOT being taxes on out-of-state sales.

Re:They're both wrong.

[a hollow voice]

> The amount of tax revenue lost by the states is exactly zero.

> 1. You can't lose something you never had.

Sorry, but that's entirely wrong.

Opportunity Cost (definitions: 1 [investorwords.com], 2 [msn.com]) is essentially the issue here. The cost of something also includes the opportunity that is given up, even though it was never actually posessed. Assuming that consumers would buy the same goods whether online or in stores, every purchase online deprives the states of the otherwise-available opportunity to tax that purchase.

This situation is a little different from classic examples of opportunity cost, because the person making the choice is not the one losing the opportunity, but the same principles apply. The states never had that money, but they have indeed lost it because the online purchases removed the opportunity.

I'm no economist myself, so if there's a principle that applies more directly to the situation I'd be interested to hear it. Also, I make no judgement on taxing online purchases here; I'm just pointing out that you don't have to be able to hold something in your hand in order to lose it.