RealTime IT News

Battle Over Net Sales Tax Heats Up

The battle over sales taxes on e-commerce transactions is shaping up, with many of the nation's governors pushing Congress for relief on perceived lost revenues, while e-tailing companies and industry associations assert that such taxes would cripple their nascent businesses.

In fact, more than 40 state governors are expected to sign a letter this week to all members of Congress urging them to reject a flat-out moratorium.

The governors want a chance to develop a mechanism that would allow for collection of online sales taxes, according to an article in The Washington Post.

Bipartisan legislation was introduced last month that would permanently extend the moratorium on Internet access taxes and electronic commerce taxes. The original moratorium stems from the Internet Tax Freedom Act, passed by Congress in October 1998. The act imposed a three-year moratorium on Internet access taxes and on multiple or discriminatory taxes on electronic commerce.

A House of Representatives panel said on Aug. 1 that it would press ahead with plans to extend a ban on Internet-specific taxes, while sidestepping controversial efforts that could allow states to tax online commerce. The Post quoted a draft of the governors' letter as saying: "If you care about a level playing field for main street retail businesses, and local control of state's governments and schools, extend the moratorium on taxing Internet access only with authorization for the states to streamline and simplify the existing sales tax system."

One of the difficulties with online commerce and sales taxes is that there are so many state and local jurisdictions (an estimated 7,500) with the power to levy sales taxes.

Currently, Internet sales are handled in the same way as catalog and telephone sales: If the retailer has a store in the purchaser's state, a sales tax is supposed to be added to the bill. But the Supreme Court has ruled that companies cannot be required to collect taxes in states where they have no physical presence.

Spending in many states for education and other services is dependent on sales taxes, especially those states with no income tax. The loss from not collecting Net taxes "could be large enough to compel many states to choose between reducing spending, or seeking new revenues through higher tax rates or (other) new taxes," G. Thomas Woodward of the Congressional Budget Office reportedly told a recent Senate hearing.

"What we're deciding is whether or not transactional taxes are going to be viable in the 21st century," the Post quoted Utah Gov. Michael Leavitt as saying. "They may not be, but if they are not, policymakers have to start wrestling with alternatives."