Lawmakers' New Look at Online Sales Taxes

Wednesday Jan 4th 2006 by Roy Mark
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Legislation to level the taxation playing field for all in-store, catalog and online retailers is back on the table in Congress.

Legislation to level the taxation playing field for all in-store, catalog and online retailers is back on the table in Congress.

One bill, sponsored by Republican Mike Enzi of Wyoming, would grant congressional approval to a national compact negotiated among state governments to streamline and simplify more than 7,500 diverse sales tax laws among state and local governments.

Another bill by Democrat Byron Dorgan of North Dakota supports Enzi's legislation but seeks exemptions based on total sales revenue for online retailers. Both Enzi and Dorgan are longtime supporters of an online sales tax.

Both bills would have the practical effect of allowing states to enforce sales taxes on online sales.

"This bill is not a disguised attempt to increase taxes or put a new tax on the Internet. Consumers are already supposed to pay sales and use taxes in most states for purchases made over the phone, by mail or via the Internet," Enzi said earlier this week in floor remarks. "Unfortunately, most consumers are unaware they are required to pay this use tax on purchases the retailer does not choose to collect sales tax on at the time of purchase."

Enzi said if states do not authorize the collection of online sales taxes, Americans will inevitably face higher taxes.

"Simply put, if Congress continues to allow remote sales taxes to go uncollected and electronic commerce continues to grow as predicted, other taxes, such as income or property taxes, will have to be increased to offset the lost revenue to state and local governments. I want to avoid that," said Enzi.

Led by the National Governors Association (NGA), states and local governments began the process five years ago of simplifying their sales taxes through the Streamlined Sales Tax Project (SSTP).

Meeting in Chicago last July, the SSTP took its most significant step to date to implement the collection of sales taxes on online purchases, a potential $20 billion-a-year bonanza for cash-strapped states.

The SSTP officially admitted 18 states as members of the Streamlined Sales and Use Tax Agreement's (SSUTA) governing board. The interstate alliance plans to offer retailers free software to voluntarily collect sales taxes.

Under the compact, the simplified sales tax system cannot take effect until at least 10 states representing 20 percent of the total population are in compliance with the agreement. The 18 states admitted to the SSUTA board represent 25.3 percent of the population of states.

Despite the landmark agreement, though, no one is under any legal obligation to collect online sales taxes until Congress approves the deal.

"The states have acted. It is now time for Congress to provide states that enact the Streamlined Sales and Use Tax Agreement with the authority to require remote retailers to collect sales tax just as main street retailers do today," Enzi said.

States have struggled for years to force catalogue and online retailers to collect sales taxes on purchases. In 1992, the U.S. Supreme Court said states could only require sellers that have a physical presence or "nexus" in the same state as the consumer to collect the so-called use taxes.

The court also ruled that buyers owe the tax, but the current patchwork of thousands of taxing jurisdictions across the country is too complex and burdensome for online retailers to charge and collect sales taxes. To collect the taxes, the court ruled, states would need to first simplify the existing system.

To overturn the Supreme Court's decision, Congress has to certify the states have streamlined their sales taxes.

"This bill is about economic growth. Sales and use taxes provide critical revenue to pay for our schools, our police officers, firefighters, road construction and more," Enzi said. "It will bring more money that is already owed into rural areas that are struggling economically. It will also help businesses comply with the complicated state sales tax systems."

Adapted from Internetnews.com.

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