As Online Sales Climb, Cities Confront Loss Of Sales Tax Revenue

The swift rise of e-commerce is creating new challenges for cities and suburbs in different parts of the country. The big problem is a loss of sales tax revenues as online sales climb.

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In certain parts of the U.S., warehouses are in high demand. Online businesses need them for storage. It's happening as people spend more money online and less in traditional stores. And this shift is changing things in a lot of communities, everything from zoning laws to the way police departments are funded. Charles Lane of member station WSHU reports on the demand for industrial space.

CHARLES LANE, BYLINE: Marko Glavadanovic is a commercial real estate broker in Huntington, N.Y.

MARKO GLAVADANOVIC: Good ceiling, high. It's a good column spacing. It is connected to sewer.

LANE: He's showing off a warehouse that he admits is pretty rundown. But there is so little industrial-zoned land in the region that companies are willing to tear down a perfectly good warehouse just to build a bigger one.

GLAVADANOVIC: Absolutely because you don't have a level of supply that is growing. So there is no more room. Big companies like Amazon are pooling on other companies to come here, and they need a space.

LANE: Huntington is an extreme example. Warehouse prices here have jumped 10 to 20 percent in the last year. But across the U.S., industrial vacancies are at a low. Suzanne Mulvee researches real estate for the Costar Group. She says communities, particularly suburbs, have too much space dedicated to retail and not enough zoned for industrial, which would accommodate warehouse fulfillment centers that are creeping closer to customers in order to reduce delivery times.

SUZANNE MULVEE: But you can't open up a million-square-foot warehouse, you know, in downtown Boston. So what you do instead is you open up smaller, you know, centers closer to - or smaller warehouses closer to the city centers.

LANE: Even if local zoning boards could simply swap vacant strip malls for warehouses, they'd still lose a huge source of revenue - sales tax. Max Behlke is budget director for the National Conference of State Legislatures.

MAX BEHLKE: Across the country, it's tens of billions of dollars each year. And as e-commerce continues to grow at 15 percent a year like it has the last six years, those numbers will grow.

LANE: It used to be that local communities would compete for big box stores because getting that sales tax was a politically painless way to fund fire departments and road projects. But according to census data, last year, 22 states had either negative sales tax growth or growth that couldn't keep pace with inflation.

BEHLKE: It definitely is a problem. I think it's something that the public should be better aware of. What's happening to the way we shop? It's going to have an effect down to the revenues that pick up your trash or fix the potholes in your street.

LANE: Instead of raising property taxes, states have tried to figure out ways to make Internet companies like eBay and Amazon collect the sales tax from their third-party sellers. Those companies have resisted. Of the 40 states that have introduced bills attempting to get sales tax from online marketplaces, only nine have been successful. Behlke also blames e-commerce for stealing jobs from local communities, but that might not be true. According to Michael Mandel, an economist at the Progressive Policy Institute, warehouses have added five times the number of jobs that retailers have cut.

MICHAEL MANDEL: You're not in a situation where you're eliminating brick and mortar and nothing is appearing. You're actually creating jobs in a lot of places where jobs didn't exist before.

LANE: Mandel's view is not universally accepted, and he's quick to add that the data could change. But he says there is the possibility that technology might help reduce income equality.

MANDEL: Most of the counties that are getting jobs from the fulfillment centers are not the counties that have gained jobs from the tech boom in the past. This is an expansion of the winner's circle.

LANE: He says these new e-commerce jobs could narrow a widening wage gap in the U.S. labor economy as part-time retail sales jobs are replaced by a full-time, decent-paying warehouse jobs. For NPR News, I'm Charles Lane.

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