[1]Microsoft Small Business [2]Business First [3]Kemper Insurance Companies [4][ISMAP]-[5][USEMAP] December 29, 1997 Tech Watch Groups line up in support for Internet commerce taxes ______________________________________________________________ John Frees Rumblings on the horizon suggest that tax-free Internet commerce could be coming to an end. State governments, already losing as much as $3 billion annually in taxes on direct-mail purchases, are taking a strong look at the growing market for online purchases. The Federation of Tax Administrators, the National Conference of State Legislatures, National League of Cities and the National Governors' Association all want Congress to let states tax such purchases. But problems involved in deciding how states could collect those taxes could delay any foreseeable solution. Advocacy groups favoring the collection have created an electronic commerce project to decide how states can obtain their share of taxes. But even advocates have wide differences of opinion, says Harley Duncan, executive director of Washington D.C.-based Federation of Tax Administrators. "People in the project run the gamut from those who want to apply taxes responsibly to everyone to those who argue that electronic commerce deserve special consideration, while others say we ought to say it should be treated the same as mail order," he says. There are some similarities -- and some differences -- between mail order and Internet commerce, says tax attorney Harvey Dunn of law firm Schottenstein Zox & Dunn. If a company has some presence in Ohio, say a store or a trucking company, then sales tax could be charged. But an out-of-state mail-order company that ships a product via common carrier doesn't have to charge sales tax. However, buyers should pay a "use tax" on items once they receive them, he says. "But no one does," Dunn says. Cars bought out of state are charged a use tax because they are titled, which gives the state control. The difficulty comes in determining how to collect such a tax, says Julie Carpenter, spokeswoman for the Ohio Department of Taxation. Right now, there's no way for the state to police all the goods that are bought elsewhere but used here. "An Ohio taxpayer's obligation is to pay the tax," she says. "Realistically, is this going to happen? Probably not, without guidelines and some oversight." Online purchases are even murkier because the Net's unique nature allows some products such as music, software or electronic magazines, to be downloaded, Duncan says. While a CD purchased in a store can be taxed, how can a government collect on a few megabytes sent over the Internet? The electronic commerce project is looking at a billing address approach, Duncan says. If the commerce terminates in a state and is billed to someone in that state, then that state could make a strong case for collecting taxes on the commerce. Another issue states face is the different taxation rates among states. If a product made in New Hampshire is sold online to someone in Ohio, should Ohio collect a sales tax even though New Hampshire doesn't have a state sales tax? And how should sales from other countries be factored? Because of these and other issues, Duncan doesn't expect project members to have a grasp of the issue until sometime next summer. Meanwhile, Everen Securities estimates general, apparel, furniture and other sales nationwide are expected to hit $795 billion by 2000. As much as $79 billion of that will be sold online. At an average sales tax of 5 percent, nearly $4 billion in taxes will go uncollected unless the states can convince the federal government to figure out a way to give them a share. Got a tip for Tech Watch? Reach reporter John Frees at columbus@amcity.com or by phone at 461-4040, ext. 143. © 1997, Business First [6]More News Columns References 1. http://www.microsoft.com/smallbiz 2. http://www.amcity.com/columbus/ 3. http://www.KemperInsurance.com/ 4. http://www.amcity.com/columbus/maps/new_topbar.map 5. LYNXIMGMAP:http://www.amcity.com/columbus/stories/current/newscolumn1.html#topbar 6. http://www.amcity.com/columbus/stories/current/newscolumns.html