The debate over whether the Internet should remain a huge tax-free marketplace for U.S. shoppers probably will not be resolved in 2004, according to policymakers and experts who cited the upcoming presidential election as a political disincentive to action as well as stubborn resistance by some lawmakers and business interests to any effort to tax electronic commerce.
That prospect would be a setback for a quiet but dogged effort led by state officials and some of their allies in the business community to get Congress to authorize state governments to collect taxes on their residents' Internet purchases.
"I would be stunned if there was a vote on this in a presidential election year," said Bartlett Cleland, associate general counsel for the Information Technology Association of America, a high-tech lobbying group that has lobbied against the plan.
The co-chairman of the states' working group on Internet sales taxes agreed. "I don't think anyone doubts this is going to be a tough sell in Congress during an election year," said Diane Hardt of the Streamlined Sales Tax Project.
Nevertheless, Hardt's group is working overtime to persuade more retailers to voluntarily collect taxes from their customers in every state that has a sales tax.
"There are huge financial incentives for the states to get this done, and the states would like to get this money as soon as possible," she said.
Some state legislatures have already voted to modify their sales tax codes to accommodate the plan, but the endgame almost certainly will play out in the halls of Congress. Reps. Ernest Istook (R-Okla.) and William Delahunt (D-Mass.) introduced a bill earlier this year that would give the congressional go-ahead to the sales tax plan, but that proposal will die if it does not get a vote before the end of 2004.
The stakes -- by some estimates -- are high. An oft-cited 2001 study by two professors at the University of Tennessee said that the amount of uncollected taxes on e-commerce will grow to $45 billion by 2006.
States have long argued that it is unfair that they can't tax all Internet commerce, especially when sales taxes are a principal way to ensure that business activities support vital local services like education and transportation services.
Collecting taxes on online retail transactions is equally appealing to the so-called "bricks-and-mortar" business community, which sees the Internet's tax-free status as a powerful force discouraging shoppers from heading out to physical stores. Even online retailers like Wal-Mart, Target and Amazon.com, which initially balked at the idea, have started to support it this year. Wal-Mart and Target, which maintain both physical and online stores, are particularly anxious to eliminate any state claims on previously unpaid taxes on online sales.