April 20, 2007 10:16 AM PDT

Week in review: Taxing times

This time of year can bring up issues that tax both your patience and your wallet.

The days of shopping online to avoid sales tax may soon be over. A powerful alliance of politicians, including key U.S. senators and the National Governors Association, is arguing that out-of-state retailers must be required to charge sales taxes on purchases. This is hardly a new debate, but the political dynamic is new. While its precise contours are difficult to map, a Democrat-controlled Congress is seen as more likely to agree to the idea than one controlled by Republicans.

Another factor that could tip the scales in Washington in favor of the pro-sales tax forces is a concept called the Streamlined Sales Tax Agreement, invented in 2002 by state tax officials hoping to straighten out some of the notorious convolutions of state tax laws. If that happens, they believe, it will be easier to persuade Congress to make sales collection mandatory for out-of-state retailers.

Many CNET News.com readers expressed rage and frustration at the possibility of Internet sales being taxed, while many also debated the true purposes of taxation.

"I should have the right to purchase an item in a state that has no sales tax," wrote one reader to the TalkBack forum. "States can compete for business by having competitive tax rates. States with prohibitive taxes should suffer the loss of revenue."

In another tax arena, a key U.S. senator says Congress may fail to renew a temporary ban on some state and local Internet access taxes that expires on November 1. Sen. Ron Wyden (D-Ore.) said he fears that lobbyists for state and local governments and their powerful allies in Washington will stymie efforts by Internet and telecommunications companies and free-market groups to make the ban permanent--or even to renew it again.

If the tax moratorium expires, monthly bills for Internet access could come to resemble bills for telephone service, with a welter of confusing taxes, recovery fees, surcharges and administrative fees tacked on at the end. Those fees can raise a subscriber's total cost by 20 percent to 30 percent.

If you feel like you are getting hammered by the IRS, you'd probably be especially irritated if you were ripped off by an IRS look-alike. The U.S. House of Representatives voted to punish commercial Web sites and e-mail senders that falsely portray themselves as having ties with the Internal Revenue Service.

Federal law already prohibits use of Treasury Department names and symbols commercially in a way that "could reasonably be interpreted or construed as conveying the false impression" that a site is associated with the federal agency itself. Current law does not exclude the Internet.

Another section of the bill targets ID fraud: it would require the IRS to notify taxpayers "as soon as practicable" if the agency discovers an individual's information may have been accessed and used in an unauthorized manner.

The IRS also warned that online filers should be aware of "late tax" scams. The scams lure taxpayers to Web sites that purport to offer free online tax filing services, but instead are set up to steal refunds, the agency said on its Web site late Friday. The IRS reminds people that only those services listed on its Web site are allowed to state that they are part of its "Free File Alliance."

The fraudulent Web sites accept tax information and actually submit the return through a legitimate free filing service, but the fraudsters change the taxpayers' bank account details to their own before filing, the IRS said.

Tech trouble
Tax season can be stressful enough even when your paperwork is in order, but this year many last-minute filers found that they could not get the IRS to take their returns. Many TurboTax customers were barred from filing their returns electronically, although they won't face any penalties for the problems caused by overloaded servers at Intuit.

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2 comments

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Politicians don't want simple taxes
What would they do all day? How could they grant favors to their constituents? Why would people fund their campaigns? The tax code is literally the physical instantiation of the Washington favor bank. I don't think you could find even a single crazy that would claim the tax code is as long and complicated as it is because that is what's required to make it sufficiently fair.
Posted by scdecade (329 comments )
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Sales taxes should be completely abolished
Otherwise you'll continue to have this mishmash of rates vs localities vs what's taxable and what's not taxable making it a nightmare for a single internet retailer to keep up. The flip side is like the ridiculous demand on my state forms this year that I declare and pay sales taxes for all internet purchases I made.

Sales taxes are a loser's game, the states ought to be looking at how they can shift away from such taxes entirely.
Posted by extinctone (214 comments )
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