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A New Internet Sales Tax Proves Much More Lucrative Than Expected

Wilfredo Lee

In its first year, Pennsylvania’s new tax on internet sales has made significantly more money than lawmakers planned for—and experts think the influx is due, in part, to rapidly expanding online commerce.

The so-called Marketplace Fairness Act took effect last March.

It targeted online retailers like Amazon, requiring them to apply the state sales tax to items they sell via third-parties.

According to the state Revenue Department, it was expected to make about $50 million in its first fiscal year. But in a recent presentation to lawmakers, the state’s Independent Fiscal Office said it’s on track to make $300 million.

Why the difference?

IFO Director Matthew Knittel said a US Supreme Court case out of South Dakota bolstered laws like Pennsylvania’s, and probably increased compliance.

Plus, he said, “sales through the internet from remote sellers, from third party vendors are increasing at such an exponential pace that the data we were using was a little bit out of date.”

Knittel noted, the online retail boom doesn’t actually have a huge impact on state tax revenue overall.

“We’re really picking up money that was, I would characterize it as eroding the tax base,” he said. “Because we were shifting away from brick-and-mortar to internet sales.”

Sales tax revenue from brick-and-mortar stores is growing at a slower rate, Knittel said.

The Revenue Department has a more conservative estimate on online tax revenue than the IFO— it’s expecting around $200 million by the end of the fiscal year.