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Internet Sales Tax Effort on Hold for Now

On the other side of the debate are groups like the ITAA and the Microsoft-funded Association for Competitive Technology, which oppose the plan as currently written. These groups say they support simpler state taxes but don't want to see the Internet economy sucked dry by over-taxation.

Rep. Istook remains optimistic that his bill will pass, said spokeswoman Micah Swafford. She noted a 2001 vote in which the House of Representatives voted by a 2-1 margin in favor of a nonbinding resolution supporting the online sales tax plan.

____Tech Policy Year in Review____
washingtonpost.com's tech policy team members summarize major developments in 2003 and look forward to what 2004 holds for the debate over Internet taxes and the battles to can spam and stop Internet crime. spacer
Internet Security and Cybercrime: A look at the increasingly sophisticated nature of online crime.
Spam: Critics charge the new federal anti-spam law won't work.
Internet Sales Taxes: It may be 2005 before the state-led effort to tax Internet retail sales gains traction.
Internet Tax Moratorium: The states' rights issue collided with efforts to renew the Internet access tax ban. Will Congress cut a deal in 2004?
Tech Policy Wrap-up: Major developments in 2003.

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_____E-Tax Headlines_____
Moratorium on Web Tax Advances (The Washington Post, Nov 18, 2004)
Congress Poised to Vote on Internet Taxes (washingtonpost.com, Nov 17, 2004)
Senate Backs Internet Tax Ban Extension (The Washington Post, Apr 30, 2004)
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But given the strong anti-tax sentiment among the House Republican leadership, some proponents of the plan are looking to the Senate for a better reception, said Maureen Riehl, vice president of state and industry relations for the National Retail Federation.

"There's just not as much of an anti-tax crowd in the Senate. They don't see this issue like many House Republicans do. The senators seem to understand that what we're talking about here is collection, not a new tax," Riehl said.

Rallying Around States' Rights

Even though the House leadership under Majority Leader Tom DeLay (R-Texas) is opposed to the plan, many of its ardent supporters are Republicans who have practically built their careers as anti-tax hawks. Istook, the lead sponsor of the House bill, is well known for being tough on taxes, as is Mike Enzi (R-Wyo.), sponsor of a similar bill in the Senate. Other conservative Republicans backing the state effort include Reps. Ray LaHood (Ill.) and Spencer Bachus (Ala.), and Sens. Chuck Hagel (Neb.) and Kay Bailey Hutchison (Texas).

For these lawmakers, online sales taxes are a matter best left to the states.

"Some of those are very staunch states'-righters," said Richard Prem, director of global Internet taxation for Amazon.com. "When people look at these issues, they realize that there's a more fundamental issue than just taxes on the line here."

Two of the senators currently supporting the states on issues of taxing Internet access and sales -- George Voinovich (R-Ohio) and Lamar Alexander (R-Tenn.) -- are former governors and remember the difficulties they faced in handling tight state budgets, Prem noted.

Some lawmakers are sympathetic to the complaints of large, established retailers in the offline world that say it is unfair for their online counterparts to get a tax break, said Gary Gudmundson, spokesman for the Ohio Department of Taxation. "Traditional retailers provide jobs, they pay taxes ... How can you ignore them? Not to mention that they're much bigger players financially."

At this time, 45 states require citizens to pay sales taxes on their purchases, even if they're made online or in another state. Few online businesses collect those taxes because there's no way for other states to force them to hand over the money. That stems from a 1992 Supreme Court decision that says businesses can't be forced to collect taxes for a different state than the one they're located in. In that ruling, the court said Congress can authorize the collection of Internet and catalogue sales taxes across state lines, but only if the states simplify their tax systems first.


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