September 9, 2005 4:00 AM PDT

Renewing the push to collect Net taxes

State officials plan to revive this fall their push to force Internet and mail-order vendors to collect sales taxes from their out-of-state customers.

On Oct. 1, 13 states will officially launch reformed systems that pledge compliance with the Streamlined Sales Tax Agreement, first devised in 2002 by a committee of state tax officials and billed as a way to make tax administration simpler and more uniform. Five more states have passed laws that, over the next two years, will bring them into compliance with the agreement.

Compliance with the system won't change the fact that tax collection remains voluntary for companies without a physical presence in the states where their orders originate, thanks to a 1992 Supreme Court decision.

But project backers say they hope the streamlined system, even with voluntary compliance, would attract participation from multistate companies that say the current tax system is too complicated.

"In some ways, this has absolutely nothing to do with the Internet," said project co-chair Scott Peterson of the South Dakota Department of Revenue. "What we're trying to do is simplify sales tax administration, whether that's for the downtown hardware store, 1-800-Flowers, or Walmart.com."

That means smoothing over differences among state tax procedures. For example, some states distinguish soft drinks from food when deciding tax rates on each, but the definition of soft drink varies widely, Peterson said. His project's solution? "Anything with less than 50 percent juice is considered a soft drink," he said. "Fifty percent or more, it's considered food."

The next step is to make collection by out-of-state vendors mandatory.

The National Governors Association and the National Council of State Legislators, among other groups, are lobbying Congress to introduce a measure this fall that would recognize the streamlined sales tax agreement and force all companies, including "out-of-state or remote vendors," to collect sales tax from customers in states that subscribe to the agreement, said David Quam, federal relations director for the Governors Association.

A tax-collection headache
In 1992, the U.S. Supreme Court concluded that a remote or mail-order retailer has to collect sales tax only from customers who order from states where the retailer has a physical presence. But even that decision doesn't leave shoppers off the hook.

Collection agencies
The Streamlined Sales Tax Agreement is gathering adherents, with 13 states coming into compliance Oct. 1, and five more set to do so within two years.

• Oct. 1, 2005: Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, New Jersey, North Carolina, North Dakota, Oklahoma, South Dakota, West Virginia.

• Within two years: Arkansas, Ohio, Tennessee, Utah, Wyoming.

• States with no sales tax: Alaska, Delaware, Montana, New Hampshire, Oregon.

Technically, those who live in states with sales taxes--there are 45 of them, plus the District of Columbia--are already supposed to pay fees on their out-of-state purchases, even if they were seemingly "tax-free." That's because all of those states have a use tax, typically levied at the same rate as the sales tax, on out-of-state items their residents have bought tax-free. If the item was bought out of state but taxed at a lower tax rate, some states, such as California, ask their residents to pay their home state the difference upon their return.

Most people, however, don't bother to file the returns. According to a 2004 study from the University of Tennessee's Center for Business Research, the states lost an estimated $15 billion in revenue because of their inability to collect taxes on certain e-commerce operations. The paper's authors predicted that number to climb to as much as $34 billion in 2008, based on a high-growth model.

Congress has already attempted--without success--to compel all businesses to collect taxes from customers living in states that back the streamlined plan.

In October 2003, Sen. Michael Enzi, a Wyoming Republican, introduced the Streamlined Sales and Use Tax Act, which would have required all businesses with a gross income of more than $5 million to gather the fees.

An identical bill was introduced on the House side, after which Rep. Bill Delahunt, a Massachusetts Democrat, remarked, "Brick-and-mortar businesses--and the communities that depend on them--

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13 comments

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Simple, or nothing.
As a prospective online businessman, I can see charging taxes to customers, and I'm okay with that. But if it's not simple, it's not worth the hassle. The idea of even having to keep track of sales taxes for 50 states is crazy enough, never mind for thousands of zip codes! If I was making serious money from online sales, I'd move offshore just to avoid all that!
Posted by Steve Jordan (126 comments )
Reply Link Flag
There's a reason this is so complicated
The idea of sales tax being paid to the state where the purchaser lives is flawed. They should be charging sales tax for the point of sale.

But that's just one more flaw in a system rife with flaws. When the government applies both income and sales taxes it's burning the candle at both ends, when they add in property taxes, capital gains taxes and estate (death) taxes they've lit fires at several places along the middle of the candle too. That's why the "flat tax" idea is resisted so hard, if the public truly knew how much they pay in taxes (which would be shown by a flat tax) there'd be another tax revolt.
Posted by aabcdefghij987654321 (1721 comments )
Reply Link Flag
Collect - Yes! Pay - No!
It's not so much of a case that on-line retailers won't collect the sales tax; they will be more then happy to add 3-8% onto the sale. The problem is then insuring that these retailers actually pay the states that they are collecting taxes for. As with many of the local computer shows, where the businesses come into the show from out of state, they are happy to add tax to the final sale price, but rarely (if ever) actually send the tax to the state comptroller.
Posted by mikey001 (3 comments )
Reply Link Flag
Tired of being nothing more than a revenue stream
I am growing extremely tired of being nothing more than a
revenue stream to my state and local government.

California is a great example of this absurd behavior (you the
taxpayer are supposed to calculate the difference of the tax you
paid somewhere else and what you would have paid and then
send the state the difference). I say "Up Yours!"

The use tax is absolutely absurd in its nature and shows how
arrogant these states have become.

The Income tax is nothing more than indentured servitude to the
state and federal government. Simply by the act of working, you
owe money -- ridiculous. Combine that with the bizarre sales
tax approaches and you realize that we, the people, are nothing
more than a source of revenue to the folks in the various
legislatures.

Income Tax, Sales Tax, Property Tax, Use Tax, Gas Tax and then
Fees every time I want to actually use services these taxes
should have used for and I think it's time to start holding these
folks accountable before they get one dime more. I'm tired of
working just to supply my various government leaders with
money they can pass off to their buddies and their companies.

I say make income tax unconstitutional (now there's a reason to
change the Constitution), issue a flat tax and start holding these
politicians accountable for all the back-door corporate welfare.
Posted by m.meister (278 comments )
Reply Link Flag
It may be different in the States...
"The Income tax is nothing more than indentured servitude to
the state and federal government. Simply by the act of working,
you owe money -- ridiculous. Combine that with the bizarre
sales tax approaches and you realize that we, the people, are
nothing more than a source of revenue to the folks in the
various legislatures."

Apologies if this is a difference in the tax systems between the
US and the UK (where I live) but, er, isn't all that tax generated
by your "indentured servitude" used to pay for pesky things like,
oh I don't know, education, welfare, defence, roads etc. You
know, those awkward little parts of life that none of us could get
along without.

As for state sales tax; you guys can't really have it all ways can
you? Either you have a Federal government and individual states
have a lot of devolved responsibility, or they don't. If you do,
then those States need a way of raising cash to run their State.
And whilst I agree that individual sales taxes for each state can
be confusing, surely you allow each state to dictate it's own
needs - and therefore the budget it requires.

Apologies for the mini diatribe, especially from a bloke in the UK
who may not have a perfect handle on America's tax system -
but when I see comments such as "indentured servitude" I see a
person speaking without thinking.

Ross
Posted by ross brown--2008 (57 comments )
Link Flag
Which 13 States?
The journalist would do well to identify in the piece the 13 states that have taken the pledge?
dusher
Posted by dusher (21 comments )
Reply Link Flag
The List of States
" Oct. 1, 2005: Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, New Jersey, North Carolina, North Dakota, Oklahoma, South Dakota, West Virginia.


" Within two years: Arkansas, Ohio, Tennessee, Utah, Wyoming.


" States with no sales tax: Alaska, Delaware, Montana, New Hampshire, Oregon.
Posted by rhyssleary (35 comments )
Link Flag
A Simple Suggestion
If the states want to collect such a confusing set of sales taxes, I feel the states should do something like this:

The states would setup and maintain a distributed web service which implements these rules.

The vendors would each have a vendor ID, would submit a description of the item and the price being paid. The vendor would submit this information to the clearinghouses' web service. Based on this, the vendor would receive a tax amount to charge and location to send it.

Include some random audits of vendors to ensure they are being honest.

Otherwise, forcing online vendors to implement such a complex scheme is an unfair burden.
Posted by bluemist9999 (1020 comments )
Reply Link Flag
a recipe for total abuse
Unfortunately, that would be a recipe for total abuse by the
states, the entity running the shared service and/or vendors.

One of the arguments used is that it gives etailers an unfair
advantage compared with local stores, so to really be fair -- the
shipping costs should be subtracted from any tax owing as well.

States essentially want a tax increase (they say there is $15
Billion in lost "revenue"), so they need to justify this increase as
well. We need to stop giving to these folks blinding and praying
they'll do the right thing -- because they haven't been doing a
great job. When they run out of money, they just TAKE MORE.
Posted by m.meister (278 comments )
Link Flag
No way...I'll buy more fron individuals
if I'm being forced to pay for sales taxes online. We're already getting screwed by so many taxes, why cave in? I'll buy more from Ebay where the government will have a hard time collecting from individuals.
Posted by bobby_brady (765 comments )
Link Flag
If I'm forced to pay online sales tax...No more buying
online for me. I love buying from Amazon, no sales taxes and free shipping are $$$ in my pocket. But once government tries to screw people AGAIN and force us to pay more taxes for their ineffiecent government programs, forget it. I'm gone.
Posted by bobby_brady (765 comments )
Reply Link Flag
All taxes are . . .
All taxes are an income tax, whether it is determined by
purchase or by property owned, they are are all income taxes.
The only difference is that a sales tax ( and property tax ) is
regressive in that it punishes the poor, those less able to pay.
Posted by jmmejzz (107 comments )
Reply Link Flag
 

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