March 21, 2001, 2:29 PM — The U.S. Senate Commerce Committee, which is considering two controversial issues related to Internet taxation, was told last week by online retailers that dot-coms shouldn't be forced to collect sales taxes unless state tax rules are simplified and retailers receive some reimbursement for collection costs.
Barring "substantial simplification" that creates more uniform tax rules at the state level, imposing sales tax collection obligations on Internet-based retailers that don't have widespread physical operations would create "an unreasonable burden," claimed Robert Comfort, vice president of tax and tax policy at Amazon.com Inc. in Seattle.
Comfort, in an interview after he testified at a Commerce Committee hearing, said complying with any tax collection requirement would also be expensive - potentially costing millions of dollars in software development and personnel expenses. States can't "reasonably ask us to become a collector of their taxes . . . and make us bear the whole cost," he said.
Older Rules Easier
Under two previous rulings by the U.S. Supreme Court, a business isn't required to collect sales taxes unless it has a physical presence in the state where the customer resides. State governments are trying to get Congress to change that restriction, fearing that they will eventually lose significant sales tax revenue if so-called remote sellers continue to be given a free pass from collecting taxes.
At last week's hearing, the Commerce Committee heard conflicting views on how to approach the Internet tax issue. But other corporate executives who testified backed up Comfort's contention that companies can't begin to consider collecting sales taxes until the rules are simplified. The retailers want one tax rate per state rather than having to deal with thousands of taxing districts and uniform definitions from state to state on what constitutes a taxable item.
"Allowing state and local governments to unleash economic anarchy . . . could have long-term devastating effects on the economy, business and employment," said Frank Julian, operating vice president and tax counsel at Federated Department Stores Inc. in Cincinnati, which owns Bloomingdale's, Macy's and other large retail chains.
Also permeating the hearing was the dot-com shakeout that has resulted in the shutdown of numerous e-commerce ventures and cutbacks at Amazon and other top online retailers. "The Internet economy is not bulletproof," said Sen. Johhn McCain (R-Ariz.), the committee's chairman. "The plunge in the Nasdaq is a clear sign that we need to be mindful of the economic effects of our tax policy decisions."