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TECHNOLOGY EDGE: To tax, or not to tax?

The 107th Congress is certain to deal with the issue of Internet sales taxes. Although the current moratorium on new Internet taxes expires in October 2001, Congress faces mounting pressure to extend the moratorium.

Advocates of an “equal playing field for all” — including leaders in the shopping center industry — hope legislators will resolve the issue before extending the deadline.

“We were heartened last year when the Senate overrode efforts to get an extension of the moratorium,” says Steve Pfister, the National Retail Federation's senior vice president for government relations.

“We are also encouraged as we see some Democrats previously labeled as ‘liberal’ who appear ready to support legislation that will help level the playing field between our members and Internet businesses,” Pfister says.

The NRF, like many organizations active on the issue, takes a multi-pronged approach. It presses for legislative relief for its members by actively lobbying on both the state and federal levels, and it also belongs to and supports pro-Internet sales tax organizations such as the e-Fairness Coalition.

Joining forces

The e-Fairness Coalition represents a total of more than 1.5 million retail stores and real estate-related businesses. Its members include ICSC, the American Booksellers Association, Ames Department Stores, National Association of Real Estate Investment Trusts, Tandy/Radio Shack, and Wal-Mart, among others.

“We feel that the best scenario is a comprehensive solution,” notes Lisa Cowell, executive director of the e-Fairness Coalition. “We hope for federal legislation that would extend the moratorium and encourage states to simplify their sales tax systems.”

Any legislation in this area faces a perception problem, according to Rep. Bob Goodlatte (R-VA). “Last year, the Congress was in no mood to pass legislation that would address the Internet tax collection problem because, to consumers who are used to getting their purchases free over the Internet, it would look like the imposition of a new tax,” Goodlatte explains.

“That's a perception problem that many Internet retailers have been happy to perpetuate,” he continues. “It gives them a preferential tax position compared to their bricks-and-mortar competitors.”

No easy answers

Opinions are split as to how the problem should be solved. The U.S. Chamber of Commerce is pushing industry groups to support extending the current moratorium. This would give state and local governments more time to devise ways to streamline and unify current tax collection efforts, explains U.S. Chamber spokesman Rick Lehman.

Others, such as NRF's Pfister, argue that extending the moratorium without attaching streamlined and unified tax collection procedures to it will pull the rug out from efforts to improve tax collection.

Whichever strategy is taken, the stakes are high. Analysts and academics are pumping out studies showing that if current trends continue and the issue remains unresolved, sales tax revenues will plummet, putting pressure on governments to offset their losses through increased property taxes. That would upset homeowners and escalate the troubles of traditional retailers even as they fight to remain competitive with Internet businesses.

Last year, many organizations, including the e-Fairness Coalition, worked for legislation to level the playing field. Sen. Byron Dorgan (D-ND) and a group of Republican co-sponsors introduced S. 2775, which calls for states to simplify their sales/use tax systems according to certain parameters set by Congress.

Once a specified number of states accept the plan, it would go into effect and they could require all businesses above a de minimis level to collect sales taxes. Similar legislation (H.R. 4622) was introduced in the House by Rep. Spencer Bachus (R-AL).

Dorgan and Sen. John McCain (R-AZ), both members of the Senate Commerce Committee, have reportedly been engaged in ongoing negotiations to see if they can work out an agreement that would both extend the moratorium and resolve the sales tax collection issue.

McCain has agreed, in principle, that all retailers should collect applicable sales taxes. “Texas, the home state of President Bush, derives 52% of its income from sales taxes and has no income tax,” says Cowell of the e-Fairness Coalition.

“For this reason, we are extremely optimistic that should our ongoing efforts to work with and educate the members of the 107th Congress produce the legislation we hope for, President Bush will support it.”

Mark Battersby is a Pennsylvania-based writer.

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