Net tax unlikely in near future

Consumers who buy books, clothes and other items over the Internet won’t encounter widespread efforts to make them pay sales taxes anytime soon.

A plea by 42 governors, including Indiana’s Frank O’Bannon, that Congress help force all out-of-state retailers to collect sales taxes appears likely to fail.

In return, the governors have offered to support continuing a federal ban on taxing consumers’ Internet access. Congress appears poised to extend for at least another two years that moratorium, which expires Oct. 21.

An extension means consumers will notice little change. There will be no taxes collected on most Internet purchases or access charges for getting online.

That’s fine with Jeff Haight , an Avon resident who opposes states’ efforts to force consumers to pay taxes on their Internet purchases.

“The government takes in enough money now without going after other sources,” said Haight, an engineer who buys computer parts, camping equipment and clothing from Internet vendors.

“Part of why I do it is the convenience,” he said. “I don’t get a kick out of not paying the sales tax. I look at the total cost. If an item is less expensive and I don’t need it yesterday, I order it.”

Forty-five states rely on sales taxes and companion “use taxes” to raise more than $200 billion a year. In Indiana, the taxes — totaling 5 percent — bring in 27 percent of the state’s revenue, or about $2.2 billion a year.

Most governors and lawmakers fret about the billions their states lose each year in untaxed Internet sales. Although estimates vary widely, Indiana is thought to lose more than $100 million a year.

High-tech lobbyists oppose letting states collect more taxes. Advocacy groups such as Citizens for a Sound Economy say a permanent ban on Internet taxation would ensure the cyberspace market reaches its potential.

But national retailers, including Wal-Mart and Sears, support the states’ effort.

They are among companies that must abide by U.S. Supreme Court decisions that require businesses with a physical presence in a state to collect sales taxes. Other out-of-state companies, including most catalog retailers, are exempt.

In a letter O’Bannon signed that was sent last month to all U.S. lawmakers, Congress was urged to level the playing field for businesses that compete against Internet and catalog outfits. The states emphasize they are simply trying to enforce tax laws already on the books.

“The governor favors collecting all sales taxes due on items purchased,” O ‘Bannon spokesman Andrew Stoner said. “He doesn’t favor any new Internet taxes.”

Like many other states, Indiana requires people who buy out-of-state goods to report their purchases during income tax season and voluntarily pay the use tax. In contrast, the sales tax is less susceptible to cheating because it’s collected by retailers when the item is sold.

O’Bannon paid $179 in taxes on his mail-order and Internet purchases last year, but few Hoosiers followed his example.

In 1999, the state collected $305.1 million in use taxes from nearly 126,000 returns. To increase compliance, Indiana was among 19 states that passed legislation this year authorizing officials to enter into national talks aimed at streamlining the collection of state and local sales taxes.

Participating states will try to demonstrate that collecting sales taxes in the more than 7,500 taxing jurisdictions nationwide no longer represents what the Supreme Court called an “undue burden” on out-of-state retailers.

States hope their effort will convince Congress to overturn the Supreme Court ‘s physical presence requirement and force catalog, Internet and other out-of-state merchants to collect taxes.

“When the next moratorium ends, the states should be in good shape,” said Neal Osten, director of the National Conference of State Legislatures’ Commerce and Communications Committee.

The Streamlined Sales Tax Project is supported by Osten’s Denver-based group as well as the National Governors Association and the National Retail Federation.

Through his involvement on the National Conference of State Legislatures’ sales tax task force, Senate Finance Chairman Lawrence Borst, R-Greenwood, has been a leader at the national level the past two years.

He said continuing the moratorium on Internet access taxes may not represent a major setback, because it could take states a couple of years to agree on how to define food, personal property and other goods for taxation purposes.

But not every state has given its support. Governors in states reliant on electronic commerce, such as California, Massachusetts, New York and Virginia, did not join the plea to Congress.

“It’s not going to take 50 states to kick it off,” Borst said, “but it’s going to take the states like California, New York and Florida to get something done.”