States Eye I-Tax

WASHINGTON, August 20, 2001 -- As retail e-commerce sites continue to wither and die, the governors of 43 states are asking Congress to let them impose sales taxes on online purchases. The governors say they are trying to maintain "a level playing field for main street retail businesses and local control of state government and schools."

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Should local sales taxes apply to the Web?

Among the governors not signing the document were George Pataki (R-NY) and James Gilmore III (R-VA), who served as chairman of a federal advisory panel that recently recommended extending the existing Congressional moratorium on online sales taxes.

Supporters of Internet sales taxes say that millions of sales tax dollars are presently going uncollected because of online purchases. They also argue that the moratorium gives online retailers an unfair advantage of bricks-and-mortar retailers.

Opponents, including Govs. Pataki and Gilmore, note that there are at least 7,500 local and state taxing jurisdictions across the country. They say it would be nearly impossible for most online retailers to collect and administer all those taxes, and they say the taxes would be another obstacle for the fragile e-commerce sector.

The current Congressional moratorium is scheduled to expire Oct. 21. Unless Congress extends it, states and even towns and cities will be free to impose taxes on Internet purchases made in their jurisdictions after that date.

Currently, an online retailer is required to collect sales tax only if the retailer has a brick-and-mortar presence in the consumer's state. A New York resident, for example, can't be charged sales tax for an item ordered from an online retailer in Utah unless the Utah retailer has stores, warehouses or other physical facilities in New York.

Technically, consumers are required to keep track of online, mail and telephone purchases from out-of-state retailers and send the appropriate tax to their state at the end of the year. Not many do, though, and it is nearly impossible for the states and cities to enforce the provision.

In the House, Rep. Christopher Cox (R-CA) is sponsoring a measure that extends the moratorium. It's been passed by the House Judiciary subcommittee and is expected to come before the full committee for a vote in September. In the Senate, members have been huddling with industry lobbyists and others to see which way the wind is blowing.

Leading the charge for an Internet sales tax is the National Governors Association, which is pressing for sales tax simplification, which would theoretically make it easier for companies to comply.

Leading the opposition is NoInternetTax.org, which argues that an Internet sales tax is unconstitutional.

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