State economist says online shopping is factor in sales tax revenue drain

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SIOUX FALLS, S.D. - The holiday shopping season is officially in full swing and after a weekend filled with shopping at the mall and small businesses across the country, the focus shifts to online shopping.
Cyber Monday is one of the biggest online shopping days of the year, but every sale made on the World Wide Web could potentially cost state and local government across the nation.
South Dakota’s fiscal year began July 1st and for the first four months the state tax revenue is 17.2 million dollars less than what was expected.
South Dakota’s state economist says online shopping is playing a part in that.
Seeing sales on the web?
Monday is the day for it.

“We have a progressive sale where you spend more and you get a more percentage off,” Marketing Lead at Chelsea’s Boutique in Sioux Falls Aaron Blumer said.

He says it's been a huge weekend for them.

“We had more sales online Saturday then we did the year before. We’ve had more sales online so far for Cyber Monday than we did last year already,” he explained.

This local store isn't alone.
According to market researcher Adobe Digital Insights Cyber Monday 2016 will be the busiest online shopping day in history.

It’s easy for consumers to shop with just the click of a button.

“It's a critical issue that needs to be addressed here in South Dakota,” but state economist Jim Terwilliger says it’s causing issues for South Dakota.

Online sales from out-of-state retailers are putting a strain on the state's budget.
Companies that do not have a fiscal presence in South Dakota are not required under federal law to collect and remit sales tax to the state.
Terwilliger says the sales and use tax supports 63% of the state's budget and funds critical services.

“Health care, and K-12 education, and even higher education in South Dakota,” Terwilliger said.

It's a predicament in the changing world of technology.
While businesses like Chelsea’s Boutique are getting linked with untapped markets.

“Where we look at the potential, or where sales could come from. There's a limited amount of space in Sioux falls or the Sioux Falls area,” Blumer said.

The state is searching for a long term solution to this funding problem.

This past year South Dakota lawmakers passed a law that would require out-of-state online retailers to collect sales tax from in-state shoppers.
That law hasn't gone into effect yet because it's being challenged in state court by several business associations.
It could be on its way to the US Supreme Court.

Online shopping isn't the only factor causing tax revenue to be lower than expected.
Terwilliger says a dip in the agriculture economy is also causing a drain in sales and use tax dollars.
South Dakota Governor Dennis Daugaard is expected to address the issues during his annual budget address next week.