July 16, 2004

The myth that won't die ... might.

Dr. Bill Fox, the University of Tennessee economist and business professor who has authored a series of studies for the National Governors Association and National Conference of State Legislatures claiming that e-commerce was going to cost state governments fantastic amounts of "lost" sales tax revenue, has begun to climb down from the claim, reducing his forecast of future lost revenue by 57 percent.

State and local governments in the United States may not lose as much money as they previously thought when Internet retailers fail to collect sales tax, according to a new University of Tennessee study released on Thursday.

Online shopping and electronic commerce have not been as robust as anticipated years ago, leading researchers, hired by two national groups representing state officials, to lower their estimate of sales tax revenue losses by $26 billion in 2006.

"The experience of the last several years indicated that e-commerce has been a less robust channel for transacting goods and services than was anticipated when we prepared earlier estimates," said the report, written by William Fox, director of the university's Center for Business and Economic Research.

The university's report from 2001 pegged 2006 revenue losses at $45.2 billion. Now, researchers see 2006 losses of $19.2 billion.

That Fox has admitted he was wrong is (or at least ought to be) major news in Tennessee, where Dr. Fox is a tireless cheerleader for the creation of a state income tax. His previous study is the source of the claim that online sales cost Tennessee state government $300 million a year in "lost" revenue. The Tennessee media often repeats that $300 million figure in its news and editorial coverage of the state budget and taxes as if it is incontrovertible fact, even though more than a year ago - as reported here at HobbsOnline, research from the Direct Marketing Association

contradicts and criticizes a series of University of Tennessee studies that had predicted much higher losses of sales tax revenue due to e-commerce. Those UT studies confused different types of online transactions and relied on fuzzy numbers and wildly-exaggerated estimates to arrive at its inflated figure.

Now that Fox has admitted he was wrong ... will the Tennessee media start to get it right?

Stay tuned.