INTERNET BILL ADDRESSES SALES TAX
Byline: Joanna Ramey
WASHINGTON — A national e-commerce sales-tax collection system moved a small step closer to reality Thursday with the introduction of a Senate bill on Internet taxation.
While the primary purpose of the bill, sponsored by Sen. Ron Wyden (D., Ore.), is to hold off taxes on general Internet use, it also sets out guidelines that states could follow to set up a national sales-tax collection system for Internet retailers.
The bill would also affect other remote sellers like catalogs and telemarketers.
The main advocates of an Internet sales-tax collection system are brick-and-mortar retailers and other businesses concerned that Net retailers do not share the burden of collecting sales tax. States and municipalities, fearing loss of sales-tax revenue as e-commerce grows, are also pushing for the change.
States already have the right to require out-of-state sellers to collect sales tax. However, before they can exercise that right they need to create a single sales-tax rate and agree on what items should be taxed.
There are now an estimated 7,600 tax jurisdictions in the U.S. that have a myriad of ways of taxing products. While states are already in talks about simplifying their sales-tax systems, the issue is proving complicated.
As it stands, remote sellers are now only required to collect sales tax in states where they have a physical presence, like a store or distribution center.
In addition to requiring states to agree on a single sales-tax rate, the Wyden bill imposes a number of requirements on how a centralized state sales-tax collection could work. The requirements include the creation of a central multistate registration system for sellers, rules for identifying purchasers and rules for attributing transactions to a particular taxing jurisdiction.
Under the bill, after the states agree on a tax system, then Congress would authorize the plan.
States would be able to opt out of collection. They would also be prohibited from requiring out-of-state sellers with sales of $5 million or less to collect sales taxes.
Wyden’s bill is considered a starting point for debate on the sales-tax issue. In the Senate, several members of the Commerce Committee, including influential chairman John McCain (R., Ariz.), want a Net sales tax but there are differing opinions about how it should be executed. In the House, there’s strong skepticism among Republican leadership about having a Net sales tax at all.
“I’m open to a wide variety of approaches,” Wyden said at a news conference held to discuss the proposed Internet Tax Non-Discrimination Act, to which the sales-tax issue was added as an aside.
The act’s prime purpose is to extend until 2006 a moratorium on taxes being levied on transmission of information or other such tariffs. It would also create a permanent ban on taxes levied on individual Internet service accounts. A current moratorium on all these taxes expires Oct. 31. Reps. Chris Cox (R., Calif.) and Bob Goodlatte (R., Va.) are cosponsors in the House of a bill containing the permanent ban. That bill excludes the sales-tax issue.
Wyden said the sales-tax issue was included in his bill as “an olive branch to the states.” He otherwise seems unconvinced that there is a need to tax Internet commerce uniformly.
While some states have reported a decline in sales-tax revenue, Wyden said there’s no evidence they’re losing money to the Net. He suggested that the downturn in retail sales and the economy overall could be to blame.
Although a Netwide sales tax may be far off, those favoring such a scheme applauded introduction of the Wyden bill. “We have to view the bill as positive,” said Lisa Wolski, counsel for tax and finance at the International Mass Retail Association. “We hope this can be the beginning of a dialogue.”
One of the hurdles facing the pro-Internet-sales-tax camp is working against the tax-cut fever that has taken a hold of Capitol Hill lawmakers. President Bush on Thursday introduced his proposed $1.6 billion tax-cut proposal, which will be vying with other tax-cut plans.
Even though states already have the right to require that Net sales taxes be collected, the push for a national Web tax-collection scheme is often viewed as a tax increase, contrary to Congress’s current tax-cut mode, Wolski said.
“We really want to keep the two separate,” she said. “They are so easily confused.”