Net sales tax unlikely to hit stride this year

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by Jennifer Jones

(IDG) -- E-commerce companies this year may sidestep a major Internet tax blow.

State government groups recently scaled back an effort to streamline and standardize sales tax collection across the multitude of states with such a tax. That effort could have paved the way for lawmakers to begin demanding that Internet vendors collect sales tax owed on online purchases.

States by 2003 could lose more than $23 billion in uncollected sales tax on e-commerce purchases, according to estimates prepared by the Center for Business and Economic Research at the University of Tennessee.

California would take the biggest hit at $3.47 billion, while Florida would lose $1.76 billion. New York and Texas would each suffer about $1.9 billion in combined revenue loss, according to the figures, which were produced last year.

To prompt more e-businesses to voluntarily collect sales tax on remote purchases -- which consumers owe but rarely submit on their own -- the National Conference of State Legislatures (NCSL) spearheaded an effort to make this collection easier.

"Our hope is that Internet vendors will begin voluntarily sending in sales tax on remote purchases. Right now that is really the only way, since we cannot make them do that until Congress gives us such authority or the Supreme Court weighs in and reverses previous cases, and that's not likely," said Neal Osten, director of NCSL's Commerce & Dommunications Committee.

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The complexities inherent in the separate state tax codes that companies face in remitting taxes on remote sales was central to a 1992 Supreme Court case: Quill verseus North Dakota. In the pivotal Quill case, which centered on catalog sales, the nation's highest court decided that businesses faced an undue burden in collecting and remitting taxes across state lines. If a company has a substantial physical presence or nexus in a state, however, it must collect sales tax there, the court decided.

But for some time, groups such as NCSL, the National Governors Association, and other local government groups have clamored that the sales tax system needs to be overhauled to reflect changes in the New Economy.

"States have been very organized for the last couple of years on this," said Washington-based Stan Sokul, who represents the Direct Marketing Association in Washington. "But so far they have not had enough of a push to prove they deserve the new power."

NCSL officials acknowledged that the push this year again will be somewhat limited.

Specifically, NCSL will only get as far as administrative efforts for the initiative, such as outlining a standardized mechanism that companies could use to remit sales tax on remote purchases.

Taken off the table were more controversial items such as a set of uniform definitions. This set of common definitions would have dictated things like which food items are taxable -- just one area where states vary widely and industries lobby heavily.

"We would have met with a great deal of opposition [on uniform definitions]," Osten said.

But a handful of states are still interested in pushing forward on greater simplification that goes farther than the "truncated" set of criteria put forth by the NCSL, said Dan Bucks, executive director of the Multistate Tax Commission in Washington, which worked on the streamlining effort.

Lacking such widescale uniformity, NCSL's Streamlined Sales Tax Project (SSTP) will likely be used only to coax more collection and not as a tool to convince Congress to mandate collection on e-commerce sales, most agree.

"What's surprising is that NCSL eliminated a huge chunk of uniformity. For them to say to Congress, 'Look at SSTP, we've simplified,' is going to be a much harder sell," Sokul said.

NCSL's Osten added that powerful lawmakers, including Arizona Republican John McCain, have vowed not to take up the sales tax issue in Internet tax debates until state and local government groups can agree more on significant ways to streamline.

Therefore, when the Internet tax moratorium runs out on Oct. 21, lawmakers are expected once again to bypass the issue of uncollected sales tax due on online purchases, most agree.

Legislators debate proposals for e-commerce taxes
July 12, 2000
Numbers show reality of e-sales
March 6, 2000
Governor says Tennessee relies on e-sales tax
February 29, 2000
A taxing debate over Internet taxes
November 15, 1999
House passes resolution on Net tax
October 28, 1999
Net-tax panel squabbles over budget
June 23, 1999
FTC commissioner: Don't tax the Net
November 4, 1999

What to expect when going global online
(Computerworld)
California governor says no to Net taxes
(IDG.net)
IT FORUM: Panelists advise execs to retool for e-biz age
(IDG.net)
Report: China to tax e-commerce
(IDG.net)
Donate online and save on taxes
(PCWorld.com)
Update: States approve proposal to collect Internet sales tax
(Computerworld)
EU postpones decision on online taxation
(IDG.net)
Online investing goes offshore
(The Industry Standard)

The National Conference of State Legislatures
National Governors Association

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