State governments working on a national Internet sales tax system are moving ahead with plans to create the data infrastructure that they and retailers will need to manage the collection of taxes on most e-commerce transactions.
Working together under the auspices of the Streamlined Sales Tax Project, 40 states and the District of Columbia have issued two requests for bids from technology companies to design the software and Web-based networks to track millions of online purchases and process the appropriate sales tax payments.
A request issued by the states last Friday seeks bids to build a registration system where all Internet retailers -- ranging from giants like Amazon.com to smaller companies -- would go to declare their intent to collect and remit taxes on online sales made to customers in the project's participating states.
The second request, issued last November, is aimed at making it easier for online retailers to collect sales taxes. The states plan to award contracts to multiple vendors who would provide sales tax collection systems to online retailers. As currently envisioned by the states, Web merchants would pay nothing for the services. Instead, the vendors would take a small cut from the revenues.
To date, 19 states -- including Florida, Michigan and Texas -- have modified their sales tax codes to make it easier for retailers to collect taxes on Internet sales. By October 2005, the states hope to have a voluntary collection system working in at least 15 states representing roughly one-fourth of the U.S. population. With that in place, they hope, Congress would be more likely to endorse a mandatory, national Internet sales tax system.
At stake for the states is potentially billions of dollars a year in revenue that is currently going uncollected. A study released last July by the National Governors Association and the National Conference of State Legislatures estimated that state and local governments lost $15.5 billion to $16.1 billion in 2003 in revenue from untaxed Internet sales. Total online retail spending last year was $66.5 billion, according to a report issued earlier this month by comScore Networks, a Reston, Va.-based research firm.
Several state officials involved in the bidding process declined to say which technology companies are vying for the Internet sales tax projects, citing confidentiality agreements. But sources said that the winning bidder for the registration system contract would likely be a team comprised of one or more tax software companies, a major accounting firm or a large systems integration company.
A list of companies that sent representatives to the Streamlined Sales Tax Project's meeting in Phoenix this month includes Accenture, EDS Corp., IBM Corp. and KPMG. Tax software companies present at the meeting included Salem, Mass.- based Taxware LP, Tax Matrix Technologies of Harrisburg, Pa., and Vertex of Austin.
Charles Collins, vice president of government affairs at Taxware and a former co-chair of the Streamlined Sales Tax Project, said the company submitted a proposal to provide tax collection services to online retailers. Taxware also is considering making a bid for building the states' registration system, and may team with another company if it does, he said.
Calls to several other companies went unreturned or generated "no comment" responses. At least one executive from a tax software provider said the states' procurement process forbids interested companies from discussing any potential bids.
