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Senator takes aim at untaxed Internet sales

Bill would force online retailers to collect the money for states

By Verne Kopytoff, Chronicle Staff Writer

San Francisco Chronicle

November 13, 2001

The tax-free ride most Americans have been getting on the Internet may end soon if a U.S. Senate proposal is passed.

The legislation, which could be voted on as soon as today, would require online retailers to collect sales taxes on consumer purchases and send the money to the buyer's home state.

Currently, Internet stores such as are not required to collect sales taxes from people living in states where the company has no physical presence. Out-of-state online shoppers are obliged to send their local and state governments the sales tax independently, but very few actually do so.

The legislation, introduced by Sen. Mike Enzi, R-Wyo., comes after a three- year Internet tax moratorium expired Oct. 21. The House agreed to extend the moratorium until 2003, but the Senate failed to pass its own version before the deadline.

"If Congress continues to allow sales over the Internet to go untaxed and electronic commerce continues to grow as predicted, revenues to state and local governments will fall and property taxes will have to be increased to offset lost revenue," Enzi told the Senate last month.

Enzi's bill would require online retailers to collect sales taxes on out-of- state purchases only after 20 states simplify their tax codes. Current tax laws, which allow for cities and counties to levy sales taxes on top of state taxes, are too complex for online retailers to navigate, Enzi said.

Enzi's bill is competing against a resurrected Senate effort to block all new Internet taxes, leaving the current lax collection system in place. Both sides have their supporters, with Enzi's legislation garnering eight co- sponsors, while the tax moratorium has at least six supporters, including Sen. Barbara Boxer, D-Calif.

The bills agree on one point, however. Both would ban Internet access taxes,

levied like telephone service and cable television fees.

Bartlett Cleland, vice president and counsel for the Information Technology Association of America, a technology trade group in suburban Washington, D.C., said online retailers support collecting sales taxes.

However, he said he opposes the Enzi bill because it would, among other things, allow states to tax goods sold online at a higher rate than goods sold in brick-and-mortar stores.

''This bill stuns me," Cleland said.

Sales taxes are around 7 percent in California, but can vary depending on the county and city. By some estimates, states may be missing out on billions of dollars in revenue because citizens neglect to pay self-reported sales tax, according to the National Governors Association.

Frank Shafroth, the association's director for state and federal relations, said more-stringent efforts to collect online sales taxes would help level the business playing field. Many consumers prefer to shop for books online rather than at neighborhood stores because online shopping seems like a bargain in terms of taxes, he said.

Ever since the Internet tax moratorium expired Oct. 21, states have been able to enact new Internet taxes, but none has. States would still be able to do so if the two Senate bills under consideration fail.

Among the new taxes states could approve are ones for Internet access and for specific products sold online to in-state residents, such as alcohol. But because of a Supreme Court ruling, states are prohibited from making out-of- state companies collect taxes for them.

Any bill approved by the Senate would still have to go through a House conference committee and get President Bush's signature before becoming law.

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