Online sales tax gets a closer look > Cash-strapped states seeking new sources of revenue
SEATTLE POST-INTELLIGENCER
seattlepi.nwsource.com
Friday, December 27, 2002
By JIM WASSERMAN
THE ASSOCIATED PRESS
SACRAMENTO, Calif. -- As states across the country struggle with deficits well into the billions, many officials are beginning to eye sales taxes on online shopping -- which may seem like chump change but could spare countless small government programs.
In California alone, such taxes could raise at least $200 million yearly. Nationally, local and state governments could add billions to their coffers.
"We can no longer ignore an entire segment of the retail marketplace," said Pat Leary, lobbyist for the California State Association of Counties and a frequent online shopper herself.
Internet shopping is expected to climb to $40 billion this year, from last year's $30 billion, according to New York-based Jupiter Research. It could reach $105 billion within five years.
This year's tally includes $10 billion for computers and accessories, $4.7 billion for clothes and $2.8 billion for books, and much of that is untaxed.
Collecting sales taxes won't be easy, though.
Under a U.S. Supreme Court decision, a state cannot force a business to collect sales taxes unless it has a physical presence, or "nexus," in that state.
Without such a requirement, many online retailers balk at having to compute the hodgepodge of local and state sales taxes across the nation. Most customers, in turn, duck their duty to pay the sales tax themselves and most states don't go after them.
Though Congress could authorize states to collect these taxes for other states, lawmakers have never done so and in fact have approved a moratorium through Nov. 1, 2003, on Internet-only taxes, including a streamlined sales-tax structure that would apply only to e-commerce.
Now, the issue is taking on fresh urgency in state capitals, where last fiscal year governors collectively sliced $13 billion from state programs and are preparing to whack billions more, according to the National Governors' Association.
California's Legislative Analyst's office concedes that the state, which has a projected $35 billion budget deficit, has few options if Congress doesn't change its tune.
But the state can at least force retailers with stores in California, such as Borders and Barnes & Noble bookstores, to collect taxes on Internet sales to state residents. Those stores currently do so for a few states, but not California.
Two years ago, when the state ran a huge surplus, Gov. Gray Davis vetoed a bill with such a requirement, saying it would send the wrong message to an emerging marketing medium and robust job generator.
Now, facing a record shortfall, Internet sales taxes are among many options on his table, Davis spokeswoman Hilary McLean said.
The estimated $200 million from online sales taxes could, for instance, spare a controversial cut that has been proposed: $201.8 million in public health care for the poor. Or revenues could be spread out to reduce the magnitude of cuts in several programs.
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