Internet sales tax unlikely this year

InfoWorld |  Business

E-commerce companies this year may sidestep a major Internet tax blow.

State government groups recently scaled back an effort to streamline and standardize sales tax collection across the multitude of states with such a tax. That effort could have paved the way for lawmakers to begin demanding that Internet vendors collect sales tax owed on online purchases.

States by 2003 could lose more than $23 billion in uncollected sales tax on e-commerce purchases, according to estimates prepared by the Center for Business and Economic Research at the University of Tennessee.

California would take the biggest hit at $3.47 billion, while Florida would lose $1.76 billion. New York and Texas would each suffer about $1.9 billion in combined revenue loss, according to the figures, which were produced last year.

To prompt more e-businesses to voluntarily collect sales tax on remote purchases -- which consumers owe but rarely submit on their own -- the National Conference of State Legislatures (NCSL) spearheaded an effort to make this collection easier.

"Our hope is that Internet vendors will begin voluntarily sending in sales tax on remote purchases. Right now that is really the only way, since we cannot make them do that until Congress gives us such authority or the Supreme Court weighs in and reverses previous cases, and that's not likely," said Neal Osten, director of NCSL's Commerce & Dommunications Committee.

The complexities inherent in the separate state tax codes that companies face in remitting taxes on remote sales was central to a 1992 Supreme Court case: Quill verseus North Dakota. In the pivotal Quill case, which centered on catalog sales, the nation's highest court decided that businesses faced an undue burden in collecting and remitting taxes across state lines. If a company has a substantial physical presence or nexus in a state, however, it must collect sales tax there, the court decided.

But for some time, groups such as NCSL, the National Governors Association, and other local government groups have clamored that the sales tax system needs to be overhauled to reflect changes in the New Economy.

"States have been very organized for the last couple of years on this," said Washington-based Stan Sokul, who represents the Direct Marketing Association in Washington. "But so far they have not had enough of a push to prove they deserve the new power."

NCSL officials acknowledged that the push this year again will be somewhat limited.

Specifically, NCSL will only get as far as administrative efforts for the initiative, such as outlining a standardized mechanism that companies could use to remit sales tax on remote purchases.

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