Byline: Joanna Ramey

WASHINGTON — Traditional retailers got some good news Tuesday when the nation’s governors announced they were in favor of taxing e-commerce sales and creating “a level playing field” with brick-and-mortar stores.
“A level playing field means we’re going to achieve a system that treats catalogs, retail, Internet sales and telephone 800 [numbers] essentially the same way,” said Gov. Michael O. Leavitt (R., Utah), chairman of the National Governors Association, speaking to reporters at a news conference Tuesday, in a Senate office building.
Leavitt spoke after a meeting between the governors and U.S. senators, the first such summit ever. The Internet sales tax issue, he said, served as a catalyst to bring these two groups together to coordinate legislative efforts, instead of maintaining the traditional separation of state and federal authorities.
However, the NGA, a disparate group in town since Saturday for its winter meeting, came to no decision about how — and when — Internet sales tax rules should change. Leavitt said the governors did agree that an earlier NGA proposal, calling for a third party to collect and remit Net sales taxes, had been scrapped.
Leavitt revealed there had been some discussion among the governors of exempting small Internet retailers from collecting sales taxes until they reached a certain size. Although a dozen governors opposed the NGA’s taxation-fairness decision, the resolution is considered significant because Congress is poised to debate the issue in coming weeks.
It also marks a repudiation of pending legislation, sponsored by presidential candidate Sen. John McCain (R., Ariz.), that would make the Net a permanent sales-tax-free zone.
It remained uncertain Tuesday whether the states might act on their own as a group on the e-tax issue, or with the help of Congress.
The Constitution gives states the authority to levy sales taxes, but that power was limited by a 1992 Supreme Court decision affecting catalog sales and now covering Internet sales. The court ruled that a company had to collect taxes only on sales in states where it has a physical presence, such as stores or offices. Congress would have to act to broaden this practice.
Traditional retailers, including those conducting e-commerce, want all Internet retailers also to shoulder the cost of collecting taxes. They are getting support among governors because 45 states rely on sales taxes for about 40 percent of their revenues. Governors worry that the growth of Internet sales — and an absence of taxes collected on that burgeoning volume — will result in depleted funds for public services.
NGA vice chairman Gov. Parris Glendening (D., Md.) told reporters he’d like a nationwide Internet sales tax plan to be agreed upon within 12 to 18 months, in part because the states “are under such pressure from globalization, technology and e-commerce.”
Leavitt added, “We need to make a basic policy decision as a country as to whether we are going to create a permanent special privilege for one form of commerce or strive for and achieve a level playing field.”
Among the dozen governors opposing Internet sales taxes is Gov. Jim Gilmore (R., Va.), who is also chairman of the 19-member Congressional Advisory Commission on Electronic Commerce. Gilmore, who represents a state with a burgeoning high tech industry, argues that taxing the Web will slow e-commerce and harm the economy.
The e-commerce commission is required to report its recommendations on sales taxes to Congress by April. So far, the panel, to which Utah’s Leavitt belongs, has been deadlocked on the issue.
Traditional retailers hope to present an e-tax proposal to the e-commerce commission at its last meeting, scheduled for March 20-21 in Dallas. There are six business members on that panel, all from high tech industries, but no retail voice.
Lisa Gilbertson, who follows tax issues for the International Mass Retail Association and is working on the e-tax plan, said Tuesday she was encouraged by the NGA’s declaration on Internet sales taxes.
“Anything that shows there’s opposition to McCain’s proposal is helpful,” she noted.

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