A “Virtual” Challenge: The Potential Impact of Electronic Commerce on Local Government Revenues
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A “Virtual” Challenge: The Potential Impact of Electronic Commerce on Local Government Revenues

Abstract

Over the past twenty years many California cities have substan- tially increased their reliance on sales tax revenue. The growth of online shopping threatens to undermine this source of revenue, because taxes are not collected for many electronic commerce transactions. More importantly, cities relying heavily upon tradi- tional retail may lose revenue, depending on how the State de- cides to redistribute taxes from online sales. Alternatives evalu- ated in this article include, redistribution according to the loca- tion of the retailer, location of the consumer (a residence), and population. The potential impacts of online sales growth and rev- enue redistribution are evaluated for Bay Area cities, 15 of which are identified as highly vulnerable, rapidly growing middle class suburbs. In conclusion, the implications of policies to mitigate such impacts are explored.

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