Press release issued 12/30/05

27% of Holiday Shopping Done Online This Year

Tenn. Tax System Fails in Modern Economy

Online retailers, whose growth was expected to level off after a decade of dizzying gains, experienced a stellar holiday season, according to two preliminary reports released yesterday from ComScore Networks and Nielsen/NetRatings. The Nielsen report shows online purchases accounted for 27 percent of holiday spending this year, up from 22 percent last year and 16 percent back in 2002.

While this may be good news for the online retailers, it's bad news for Tennessee and the state coffers. That's because most internet purchases are exempt from the state and local sales tax, so the more people shop online, the less revenue the sales tax brings in. Unlike most states that rely on a diversified tax base, Tennessee depends on the sales tax for 60% of it's revenue. That's nearly twice the national average.

"The growth in internet sales just helps show the complete inadequacy of the sales tax," declares Chris Daly, Board Chair of Tennesseans for Fair Taxation (TFT), "Putting all our eggs in one basket, especially the sales tax, is just bad public policy. It's time for legislators and the Governor in Nashville to open their eyes, see the real problem for what it is, and start working to reduce our dependence on the ineffective sales tax."

Tennessee's heavy dependence on the sales tax is the primary culprit for the structural deficit that Tennessee faces. Because of growing internet shopping and the growing service sector (services are usually not taxed either), the sales tax brings in less revenue each year relative to the overall economy. As a result, legislators in Tennessee are forced to cut public investments in education and other services nearly every year just to balance the budget.

"Tennessee is paying the price for bad public policy no matter which way you look at it. Even the so-called surplus the Governor is touting was only made possible by cutting health care for hundreds of thousands on top of the 5% and 9% across-the-board budget cuts of the preceding two years," concludes Daly, "Tennessee is falling behind and we have our outdated tax system to blame."