1. The Impact of Not Collecting Sales and Use Tax from Internet Sales into Pennsylvania Robert P. Strauss Professor of Economics & Public Policy Carnegie Mellon University www.andrew.cmu.edu/user/rs9f rs9f@andrew.cmu.edu A Presentation to Pennsylvania Senate Committee on Finance North Office Building 9AM May 4, 2011 6/13/20151

2. Disclosures Project funded by Alliance for Main Street Fairness Acknowledge assistance of Dr. Peter Angelides and Adam Ozimek of Econsult of Philadelphia Findings and interpretations are sole responsibility of author 6/13/20152Robert P. Strauss

3. Presentation Today Reflects Long Term Interest in Interplay between Technology, Tax Policy & Economic Development Earlier involvement in National Tax Association Project on Taxation of Electronic Commerce (1998-9) Testimony before General Assembly on Streamline Sales Tax Project in 2001; Testimony in 2000 before US House Ways and Means Committee on harmonizing state and federal consumption taxes; 6/13/20153

4. Purpose and Findings of Present Study Measure total amount of untaxed internet sales into Pennsylvania, and measure amount of gross and net new taxes that could be collected if Pennsylvania modernized its nexus standards Measure the economic impact of leveling the economic playing field and moving more sales to Pennsylvania based businesses Big Picture Findings at 2012 Levels for Commonwealth @6.28% (State + Allegheny + Philadelphia Impacts) Gross New Tax Revenues: $254M to $410 M/Year Net New Tax Revenues: $246M to $398M/Year $66 to $119 new wages and 1,530 to 2,766 new jobs 6/13/20154Robert P. Strauss

5. Figure 1 – National Business-to-Business E-Commerce (blue line) Versus Total Business-to-Business Economic Activity (red line) 6/13/20155Robert P. Strauss

6. Figure 2 – National Business-to-Consumers E-Commerce (blue line) Versus Total Business-to-Consumer Economic Activity (red line) 6/13/20156Robert P. Strauss

7. Figure 3 – E-Commerce Retail as a Percent of Total US Retail Trade Sales 6/13/20157Robert P. Strauss

8. Total Internet Sales into PA not now taxed but would be subject to tax $4,044 to $6,529 [A] Decrease in Pre-Tax Spending $215 to $357 [B1] Substitution to Other Retailers $509 to $843 [B2] Decrease in non- collecting Internet Retail $724 to $1,200 [C1] Increase in collecting Internet Retail $383 to $627 [C2] Increase in Bricks & Mortar Stores $126 to $216 [C3] Net Change in PA Sales & Use Tax Collections + $240 to + $388 [D1] +Jobs 1,530 to 2,766 +Wages $66 to $119 +Other Taxes $5.8 to $10.4 [D2] Potential Retaliation To New Law Harm to PA Internet Retailers Figure 4: Economic & Tax Impact of Collecting Use Tax on Internet Sales 6/13/20158 Robert P. Strauss