Byline: Joanna Ramey

WASHINGTON — Top retailers and politicians on Friday fired their first salvo in the looming Congressional battle over whether all Internet sales should be subject to state taxes.
Executives with Wal-Mart, Target, J.C. Penney, Radio Shack and Circuit City came to Capitol Hill in a show of force for the pro-sales-tax side. They were flanked at a news conference by a couple of dozen local and state officials, as well as three U.S. senators who vowed to champion their cause.
The event was held in anticipation of next Wednesday’s formal release of a Congressional-appointed commission on whether Internet providers, services and sales should be subject to international tariffs, access taxes or other taxes.
Public recommendations, approved by only 11 of the panel’s 19 members, sidestep the most contentious issue of directing Congressional action on Internet sales taxes.
The group, which was gathered in a Senate hearing room, contends that Internet businesses should be required to collect local and state sales taxes, just as bricks-and-mortar stores do. For retailers, it’s a fairness issue: All businesses should be subject to the same costs of collecting sales taxes. For local governments, the issue is capturing lost revenue needed for schools, roads and other services.
According to those in the hearing room, including some dissenters on the commission, the report’s conclusions are biased, crafted to favor software companies, media conglomerates and other high tech Web concerns that were the only businesses represented on the panel.
“All we’re asking is that Congress create a level playing field,” said Jim Hale, executive vice president of Target.
Internet sales aren’t entirely tax-free; their collection is restricted to states where a business has a physical presence, such as office headquarters or distribution center. This guideline for “remote sales” taxation was spelled out in a Supreme Court decision relating to catalogs, rendered prior to the onset of Internet commerce. The court ruled a company located in one state shouldn’t have to carry the burden of another state’s tax collection.
But the Internet and its huge money-making potential has changed the dynamic of this remote sales tax issue. It would take Congress to recast the sales collection obligations for retailers and catalogs.
Randy Ronning, president of Penney’s catalog, logistics and Internet division, said the current tax policy picks “winners and losers” by treating remote sales and store sales differently. “This ought to be channel-neutral,” Ronning said. He also disputed e-commerce sales tax opponents claims that a Net-wide tax policy would hamstring the Internet. “It is not a deterrent to growth,” he said.
Thomas Grimm, president and chief executive officer of Sam’s Club, said without a national sales tax policy, local governments would be forced to increase or create new taxes. “We share everyone’s concern with the tax burden issue and in no way do we want any additional tax burdens placed on consumers,” Grimm said.
Debate in Congress on this knotty tax issue has been limited, although Sen. John McCain (R., Ariz.) has a bill pending that would make the Internet a completely sales-tax-free zone.
Internet tax discussions by politicians, particularly in this election year, have typically centered on extending the moratorium on creating new e-taxes for the medium. The moratorium, which expires next year, excludes Internet sales taxes because the right of states to levy such tariffs isn’t new.
However, sales taxes are often misconstrued — some say purposefully by those opposing Internet sales — as being part of the moratorium, which has broad-based Congressional support. Internet sales tax advocates say the confusion is harming their message of “e-fairness.”
“We are losing the word battle,” said Sen. Bob Graham (D., Fla.), who spoke to the gathering and whose income tax-free state heavily relies on sales taxes. “We are not proposing to impose a tax that is not already imposed on every brick-and-mortar retailer.”
Graham was joined by Sens. George Voinovich (R., Ohio) and Byron Dorgan (D., N.D.) in advocating the Net-wide sales tax collection.
When Congress votes on the moratorium, retailers and others want a provision attached authorizing Internet sales tax collection on a national basis, effective in 2003.
McCain, as chairman of the Senate Commerce Committee, plans to hold hearings next week on the moratorium. As far as his sales-tax-free Internet bill, McCain told WWD he didn’t plan to push for a vote this year. “I think they could block a permanent ban,” McCain said, citing opponents in the Senate. “I will continue to work on it.”
Congress could wait until next year to vote on the moratorium, as well as consider the sales tax issue. For the time being, retailers want to make sure they lay down their markers. “The real debate and real discussions may not be until next year, given the election-year politicking,” David Bullington, vice president of taxes at Wal-Mart, told WWD.