| About InfoWorld : Advertise : Subscribe : Contact Us : Awards : Events : Store |
 |
||||
|
||||
 | ||||
 |
|
|||
 | ||||
|
|
|
||
|
||||||||||||||||||||||||||||||||||||||
 NEWSTo tax or not to tax? By Jennifer Jones December 4, 1999 12:01 am PT TO STEER CONGRESS toward Internet tax solutions that please both industry and government, a high-profile political group will convene for a third time in early December -- mostly to hash out what has become a new spin on old tax-collecting issues.
When Congress imposed the ban on new taxes through the Internet Tax Freedom Act, however, it steered clear of a smoldering issue: how and whether states can collect standard sales taxes owed on items purchased via the Internet. It's an old battle that traditional mail-order catalog companies have been fighting for years, and in the new digital economy it's one that carries just as much concern for companies doing most or all of their business online. It may also keep Congress' new e-commerce panel from coming up with solutions to the myriad of Internet tax issues now before lawmakers. "The idea that the Internet Tax Freedom Act created a tax-free zone is just wrong," says Stan Sokul, a commission member who represents the Association for Interactive Media, in Washington. "Internet sales are taxed by the same rules that have been around for decades." Regardless of how a consumer purchases an item (business-to-business transactions are exempt), 46 states require that sales tax be applied. In mail orders, and now e-commerce buys, those taxes are hardly ever charged, because the Supreme Court has twice ruled that businesses do not have to cross state lines to collect taxes. But the cross-state tax issue has persisted since the 1960s and will likely dominate the commission's next meeting, which is slated for December 14 through 15, in San Francisco. It is at this upcoming summit that the 19-member commission hopes to begin reaching agreement on the tangle of tax issues surrounding Internet commerce. Proposals to be discussed after the commission's open call for public comment include several industry submissions that call for radical simplification of the tax system for any kind of cross-state taxation to work (see box, below). "I'm a firm believer that they are going to come to a consensus," says Heather Rosenker, commission executive director, in Arlington, Va. "Clearly, the commission would like that to occur. But right now they are polarized." Industry, government rifts Dividing the group is the sales tax -- or, more specifically, the "use tax" -- issue that concerns how to tax an item when it is purchased from a company in one state but used by a consumer in another. The problem goes to the heart of two competing proposals put forth by gubernatorial members of the group. Specifically, Gov. Michael Leavitt of Utah is supporting the development of a national system that would encourage businesses to voluntarily collect sales taxes on Internet purchases. "Under Gov. Leavitt's proposal, taxes would be collected from all sellers, but from Internet and catalog vendors the collection would be done on a voluntary basis and would not in any way impact local sales tax," says Ralph Tabor, associate legislative director for the National Association of Counties (NACo). NACo is a Washington-based group that, along with six other government groups, backed Leavitt's proposal. Meanwhile, Gov. James Gilmore of Virginia has proposed a sweeping set of seven recommendations that would do away altogether with taxation of any kind on e-commerce transactions. Businesses -- namely the online and brick-and-mortar companies -- are equally divided, and do not come down on the same side of the use tax issue. Traditional companies grouse that Internet retailers don't have to charge a local tax. Internet companies counter that there are no shipping costs involved in a trip to the mall. "There is rough justice going on between traditional and new companies on the tax and shipping argument," says Association for Interactive Media's Sokul. "But it doesn't address the issue of local governments not collecting money." The U.S. Chamber of Commerce, which represents all businesses, has not yet put forth an official position on Internet taxation. "What we are trying to do is step back and look at this issue anew. This is the time to look past traditional tax models," says Rick Lane, Chamber of Commerce director of congressional and public affairs, in Washington. Douglas Graham, a partner with KPMG's financial services and consulting practice, in New York, adds, "There has been some push-back from retailers on the Gilmore proposal. Traditional businesses tend to lean toward the Leavitt proposal, while new businesses are more in favor of Gilmore's." Overall, Graham says, business may favor a status-quo situation in which Internet transactions are treated like catalog transactions. A recent KPMG-U.S. Chamber of Commerce survey of 150 companies seems to substantiate Graham's contention. About 76 percent of respondents -- which included some public-sector officials -- said Internet sales should be taxed like catalog purchases. "Businesses favor a solution that is fairly close to the current moratorium rules, but the catalog sales are complicated," Graham says. E-commerce quandary Deciding what constitutes a nexus, or significant physical presence, for an e-commerce company can be tricky. "Does advertising by an out-of-state company on a Web page that happens to be on a server located in the taxing state suffice? What about a logo on a Web page hot-linked to an out-of-state vendor?" asks Dean Andal, vice chairman of the California State Board of Equalization, in Sacramento. Andal, a commission member, submitted one of 35 proposals. Until mid-November the commission was soliciting input from the public, and many of the responses centered on the use tax issue. A pack of 12 major telecom vendors also weighed in. Companies such as AT&T, GTE, and Sprint put forth two plans: one that would impose a "single, statewide transaction tax," and a second that would simplify existing taxing methods in different jurisdictions. It is the multitude of U.S. tax jurisdictions that scares many e-commerce companies. As many as 7,600 local governments could each levy a tax, Sokul says. "What's at stake for business is the new burdens they are going to confront once they have instant access to a national market. They could potentially be creamed -- literally creamed," Sokul says. The eCommerce Coalition -- which includes major companies such as Cisco Systems, America Online, Sears, Time Warner, and Wal-Mart -- also pushed the commission for simplification but signaled that its member companies, many of which are heavily reliant on e-commerce, prefer no tax at all. "It is worth noting that the present situation is not a significant drain on state revenues -- states and localities have overestimated their current revenue losses due to Internet sales, and the economy is thriving in large part as a result of e-commerce," according to the coalition in its proposal. Gilmore, who serves as commission chairman, also uses e-commerce's impact on the economy to bolster his argument against Internet taxation. "This is a big revenue stream that states and localities have been fighting for," says Lee Goodman, Gilmore's deputy director of policy, in Richmond, Va. "They are trying to force burdensome sales taxes on an out-of-state company that does not use their services." Without a two-thirds consensus, the commission cannot pass along a unified recommendation to Congress. If it lacks a majority come April 2000, the group is likely to lay all of the issues before Congress, which is expected to be fairly active on the Internet tax issue next year. A final meeting of the commission is scheduled for March in Dallas. "Perhaps the best thing about the Advisory Commission is the fact that it has stimulated a debate on these issues that hasn't taken place for a while," says Mark Nebergall, president of the Software Finance and Tax Executives Council, in Washington. "States are now on notice that the tax systems are too complex. What's best for business is fairness." Jennifer Jones is a senior editor covering telecommunications and Internet issues. SPONSORED WHITE PAPERS 
SPONSORED LINKS
|
||||||||||||||||||||||||||||||||||||||
|
||||||||||
|
||||||||||
