WASHINGTON (Reuters) - U.S. cities and counties lost out on $1.7 billion of new revenue this year because Congress has not passed a bill allowing states to tax Internet sales, a report released by the U.S. Conference of Mayors on Friday showed.
From 2011 through 2013, the additional revenue would have totaled $4.5 billion, according to economic research group IHS Global Insight, which was commissioned to produce the report.
Under a 1992 U.S. Supreme Court ruling, states can only tax Internet sales made by companies with a physical presence within their borders. That means online retailers charge sales tax in some states and not in others.
The U.S. Senate in spring passed legislation that would allow states to tax sales made beyond their borders. It faces an uncertain future in the House of Representatives, where Republicans have raised concerns that the tax could burden small online businesses.
The bill would exempt sellers with less than $1 million in nationwide sales from collecting sales taxes.
The Republican sponsor of the bill in the House, Steve Womack of Arkansas, told reporters earlier this week Congress has recently focused on other, larger pieces of legislation and he was not optimistic the bill would pass soon.
States, which collect most sales taxes, have said their budgets are hurting. Fitch Ratings estimated that states are losing $11 billion annually without the online tax.
Some local governments add their own taxes, ranging from 0.1 to 6 percent, IHS said.
State and local governments combined lost out on almost $14 billion this year by not being able to tax online sales, IHS estimated.
In 2012 New York City had the greatest loss, of $200 million. Phoenix and Chicago followed with $18 million each.
Mesa, Arizona, with an annual budget of $325 million, has lost out on $14 million over the last three years, the study found.
The number may not be large, Mesa Mayor Scott Smith said, but Internet commerce will continue to grow and Congress must pass the legislation to “stop the bleeding.” Mesa does not charge property taxes.
The bill would boost the city’s revenue in two ways, because it relies heavily on state funds as well as sales taxes, said Smith.
“We’re really bare bones and we’re operating on the fringes in terms of additional revenue or additional cuts,” he said, adding that any new revenue would go toward the police, parks, libraries and other services.
Reporting by Lisa Lambert; Editing by Richard Chang