The Pleasure and Pain of Electronic Commerce

Article excerpt

The following is reprinted, with permission, from City Scan, the magazine of the North Dakota League of Municipalities.

Have you finished your Christmas shopping? While some are struggling to close the books on the 1998 holiday season, others are already pointing and clicking their way into December of 1999. No, that's not a new camera--pointing and clicking appears to be the wave of shopping's future.

Just think: no more standing in line, no more skating across the snow-covered parking lot, no more trips to wrap and ship. From the comfort of your home, you log on, use your favorite search engine to hunt down the web sites that contain what you want, select items for your virtual shopping basket, check out with a credit card number, give delivery directions, log off and cross off another piece of your list.

Can't find that volume of poetry Aunt Margaret requested? Try Does Uncle Fred like spicy mustards and interesting teas? can have a package to his door in a day or two. Need a last minute gift for guests who decided to pop in? No problem. Click, ship.

If you've already shopped online, you know this is no fantasy; you can do this and more. If you haven't tried it yet, you likely will in the near future. During 1998, the industry estimates online sales jumped from minor in 1997 to billions. Every 100 days, online purchasing is doubling.

That's troubling. Not because technology is bad, not because our local merchants can't possibly join this new wave of commerce. Thousands of North Dakota businesses are already doing business online and it is a tool that puts the rest of the world as close as a click.

The troublesome part is our systems' incapacity to capture sales tax revenue that is leaking away through remote sales. It started with mail order and it threatens to become a hemorrhage with easy electronic sales. With passage of the Internet Tax Freedom Act last fall, Congress has preempted state and local tax system changes for the next 3 years. If a state hasn't already figured out system changes, too bad. You can spend the next three years thinking about how to do it, but you can't do it.

What does that mean to our state and its cities? You get three strikes in this revenue game. One--N.D. political subdivisions share in the proceeds of .4 or 1 cent of state sales tax (about $62 million in the next biennium). When there is less state sales tax being collected, state aid payments will decrease. Two--city sales tax is not being collected on those remote sales. Three--less state sales tax means the state's budget, with its significant reliance on sales tax collections, will suffer. …