The failure to assess sales taxes on out-of-state businesses that market products over the Internet also puts local business owners at a disadvantage.
"In most cases, these tax exemptions exist not for any policy reason but rather because sales tax laws and regulations have not been updated to reflect the Internet age -- an oversight that is growing costlier every year," Maserov writes.
Nationally, state sales taxes collected on Internet sales could generate between $300 million and $837 million a year, Maserov estimates.
Individuals who avoid sales taxes by purchasing digital products online are more likely to come from upper-income households.
"Many lower-income households do not have home Internet access," Maserov points out. "Even if they do have Internet access, [they] are less likely to make online purchases."
In May 2011, 51 percent of adults living in households with incomes less than $30,000 -- which did have Internet access -- actually shopped online. But 90 percent of adults in homes with incomes above $70,000 did.
"Sales taxes already consume a larger share of the incomes of lower-income people than those who are better off; exempting digital goods and services forces lower-income households to shoulder an even larger share of sales tax collections," Maserov said.
Today, Hawaii, New Mexico and South Dakota tax almost all digital goods and services. Idaho, Utah and Washington have sales taxes that cover a broad variety of digital products and programs.
"States that have not yet extended their sales taxes to downloaded computer software, movies, music, books, and games should do so at the earliest opportunity.
"These products are almost perfect substitutes for their tangible counterparts, and it is unfair to both the buyers and sellers of the latter [tangible] products to only tax them," Maserov concludes.
The new Center on Budget and Policy Priorities study also suggests states could extend sales taxes to cover online sales and purchases of other digital products and services, such as: online magazines and newspapers, databases, and dating services.
Reach Paul J. Nyden at pjny...@wvgazette.com or 304-348-5164.