Momentum Grows for Net Sales Tax

The e-commerce sales tax issue is again coming to the fore with state officials from Florida to New York to California publicly grumbling about all the lost tax revenues from Internet sales.

In California, two state lawmakers have introduced bills that could force Web retailers to collect sales taxes on the state’s behalf.

Florida lawmakers are being urged by business groups and county and school district officials to impose online sales taxes.

And New York is being urged to join the national coalition of states working on streamlining sales tax collection so that payments can be made feasible.

There is, of course, lots of sound and fury on the e-tax issue and some major online retailers already have begun to collect sales taxes.

On a national scale, the streamlined sales and use tax agreement that was ratified in November 2002 simplifies sales tax collection and definitions and requires states to have one base for taxes, according to Neal Osten, director for telecommunications and interstate commerce at the National Conference of State Legislatures.

That agreement, known as the Streamlined Sales Tax Project (SSTP), now goes to each state, which must enact legislation to bring their state and local sales tax laws into conformity.

At a budget hearing in New York earlier this week, Tax Commissioner Arthur Roth disclosed that the state is not part of a group of 40 states working on streamlining their sales tax laws. Only five states have no sales tax.

Roth told lawmakers that the state is monitoring the state-tax group’s activities but hasn’t joined because New York’s sales tax law is so complicated that it would be hard Internet sales tax collection be pursued.

In California, where Gov. Gray Davis vetoed a bill in 2000 that would have required Web-based retailers to collect sales taxes, a new effort is under way prompted by a state deficit that could run to an estimated $35 billion over the next year and a half. California also is not part of the sales tax coalition of states.

Legislators are pushing the issue, and “nothing is off the table this year. We need to look at all options to get California back on solid fiscal footing on an ongoing basis,” Hillary McLean, a spokeswoman for the governor, was quoted as saying.

Florida officials have said the state lost nearly $1 billion in Internet tax revenue last year.

A Sunshine State coalition composed of the Florida Retail Federation, Associated Industries of Florida, the Florida Chamber of Commerce, the Florida Association of Counties and the Florida School Boards Association is pushing the state government there to streamline taxes so the state can become part of the national coalition.

Meanwhile Illinois has quietly joined several whistleblower lawsuits seeking to collect back Internet sales taxes from retailers like Wal-Mart, Office Depot and Target. According to a recent Wall Street Journal report, the lawsuits were filed under seal in 2001 under a whistle-blower statute by Chicago lawyer Stephen Diamond.

The retailers have been engaging in sales in the state of Illinois and “they are not paying the state use tax, which we typically refer to as sales tax,” Illinois Attorney General Lisa Madigan was quoted as saying. “It’s potentially a lot of money.”

Elsewhere, the Louisiana Association of Business and Industry is urging the government in that state to pursue taxes on e-commerce sales, claiming the Bayou State lost an estimated $300 million in 2001. Similar lobbying efforts are ongoing in other states across the nation.

Currently, sales and use taxes are owed on all online transactions, but states are prohibited from requiring remote sellers to collect and remit those levies.

A 1992 U.S. Supreme Court decision said states can only require sellers that have a physical presence or “nexus” in the same state as the consumer to collect sales or use taxes.

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