Even After Wayfair, States Are Forgoing Billions in Revenue

By Liz Malm and Joe Crosby, MultiState Associates

We estimate that more than $3.8 billion in state sales taxes are due and payable in non-Streamlined states on sales made by smaller online remote sellers. These sales taxes are not being collected today in any meaningful amounts, and they will likely never be collectible unless states partner with Certified Software Providers (CSPs) to facilitate collection by smaller online remote sellers. For links to data sources, please see the footnotes in the PDF copy of the report.



For 20 years, sales tax states worked through state legislatures, the Congress, and, ultimately, the Supreme Court to secure the authority to require remote sellers to collect tax that is legally due and payable. In the wake of Wayfair and with states adopting marketplace sales tax collection, one might assume that there is nothing left to fix.

But what about small remote sellers? Those who fall below the economic nexus thresholds states are adopting and who are selling into non-Streamlined states? They do not benefit from the simplifications Streamlined provides nor the state-funded access to compliance software and services. They will likely never collect sales tax without action by the non-Streamlined states. And the amount those states are leaving on the table is greater than one might think.

We estimate that more than $3.8 billion in state sales taxes are due and payable on sales made by smaller online remote sellers—those sellers with less than $1 million in annual sales—in the states that have not enacted legislation to conform to the Streamlined Sales and Use Tax Agreement (SSUTA).

These sales taxes are not being collected today in any meaningful amount, and they will likely never be collectible unless states adopt Streamlined or partner with Certified Software Providers (CSPs) to facilitate collection by smaller online sellers that would otherwise not be willing or able to collect state sales tax on their remote sales across the country. States can realize incremental revenue by partnering with CSPs because sellers which contract with CSPs regularly agree to have taxes collected and remitted in states even where the seller falls below the state’s nexus threshold. CSPs also offer incentives for these sellers to collect in all states that provide for certification.  

States that certify sales tax administration software and provide it at no cost to the seller will generate incremental revenue significantly above what they will realize by simply adopting an economic nexus standard, marketplace collection, or both. Facilitating sales tax compliance by smaller remote sellers will generate new revenue with minimal state investment—and the investment itself can be funded by the additional sales tax collections.

The purpose of this study is to estimate the amount of revenue that is due but not currently being collected. We do not argue here that all of this revenue will be collected or is even collectible. But it is without question that states and localities have tools to collect a substantial portion of this uncollected revenue by providing certified collection and remittance software to small sellers.


  • The U.S. Government Accountability Office (GAO) estimates $339 billion in business-to-consumer online retail sales in the U.S. in 2017. This number excludes sales conducted via e-marketplaces and only includes sales made by first-party online sellers.

  • 42.7 percent of online sales in the U.S. are made by companies with less than $1 million in total annual sales, according to a 2013 study conducted by Bruce and Fox for the Small Business Administration. If a business makes only $1 million in total U.S. sales, they are unlikely to exceed a typical $100,000 state collection threshold in any state, assuming their state-by-state sales are proportional to population or personal income.

  • Combining these two figures, we obtain the following: $144.75 billion in total U.S. business-to-consumer online retail sales in 2017 can be attributed to sellers with less than $1 million in total annual sales (42.7 percent of $339 billion). We will refer to this amount as “total U.S. small-seller consumer online sales.”

  • We then remove from this total the online sales which are exempt from sales tax. A study conducted by Bruce, Fox, and Luna estimates 69.6 percent of business-to-consumer online sales are taxable on average (all states). Using this taxable share figure, $100.75 billion of total U.S. small seller consumer online sales are taxable (69.6 percent of $144.75 billion).

  • The U.S. total taxable sales ($100.75 billion) are then apportioned to individual states based on disposable personal income (as is done in the GAO study).

  • We then used Tax Foundation data on sales and use tax rates to calculate the uncollected sales tax for each state (by applying each state’s state sales tax rate to the apportioned total small seller taxable consumer online sales for that state—in other words, the tax rate multiplied by the tax base). These uncollected revenues for each state can be summed for a national total, which amounts to $5.8 billion in uncollected state sales tax attributable to sellers who fall below state economic nexus thresholds.

  • Finally, we reduce the total all-state estimate of $5.8 billion by eliminating the sales tax attributable to those states which have already adopted Streamlined and are thus partnering with CSPs, resulting in $3.8 billion in uncollected state sales taxes in non-Streamlined states.

This is a conservative estimate. Factors that would lead to a higher estimate include:

  • Growth in online sales since 2017.

  • The fact that many online sellers with sales in excess of $1 million annually are also likely below economic nexus thresholds in most states (and thus will not be required to collect tax).

  • The likelihood that sales by smaller sellers are more likely to make sales of taxable goods than exempt goods or excluded services (and thus a higher percentage of their overall sales may be taxable than the estimate of 69.6 percent of sales used here).

One countervailing factor which would reduce the estimate of uncollected sales tax from small sellers is that small sellers may disproportionately make sales via third-party online marketplaces. Even if this is true, however, most marketplaces do not currently collect sales taxes and thus facilitating additional compliance by smaller sellers would generate incremental revenue for states.


It is unlikely that the Streamlined States are fully realizing today maximum potential collections from smaller remote sellers. But as these states implement adopted economic nexus and marketplace facilitator collection standards, in conjunction with their simplified systems and CSP relationships, they are best positioned to facilitate collection by smaller sellers.

Non-Streamlined states should consider adopting Streamlined. But even those unable to fully conform to Streamlined due to political obstacles have no substantive barriers to enacting legislation or regulations necessary to certify sales tax compliance software and services companies, and to provide financial incentives for smaller sellers to partner with CSPs to facilitate collection of a portion of the $3.8 billion in taxes due and payable but not being collected.

While we cannot precisely estimate the share of this $3.8 billion which is reasonably collectible, it is without question that a significant portion is, and that it can be collected at little to no incremental cost to states and at no cost at all to small sellers. CSPs have data from their existing work with Streamlined states which shows sellers below the nexus thresholds will collect taxes voluntarily when a simple, state-funded collection option exists. States can provide CSP services to sellers for free and fund those services from a portion of the incremental revenue gained. As non-Streamlined states finetune their economic nexus and marketplace facilitator collection laws, they would do well to also incorporate CSP provisions.

State Estimates

Here is an example of an individual state estimate of uncollected revenue from small sellers. Illinois’ 2017 total personal income was 4 percent of the total U.S. personal income. Using the framework outlined in the methodology, we can allocate 4 percent of the total U.S. small-seller taxable online sales to Illinois—approximately $4.16 billion. Finally, applying Illinois’ state sales tax rate of 6.25 percent, we find that if these small sellers were collecting sales tax in Illinois, Illinois’ state government would generate an estimated $259.8 million in legally due and payable but currently uncollected taxes. In other words, this is the estimated amount of uncollected e-commerce revenue available to Illinois when a CSP framework is implemented.

Results for each state are included in the table below. Grey rows are Streamlined Sales Tax states and are thus not included in the aggregate $3.8 billion estimate for non-Streamlined states, but we include the calculations for comparison purposes. States with no state sales tax have been excluded from the table (Alaska, Delaware, Montana, New Hampshire, and Oregon).


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