Execs debate 'Net taxes

A US municipal and state government groups are to present the government with a new 'zero burden' plan that would allow local sales taxes to be applied to Internet sales.

The Internet has been good to Todd Mogren and his company, Coastal Tool & Supply, a power tool reseller in West Hartford, Conn. In 1996, the company's first year of selling goods on the Internet, online revenues reached $186,000. He expects that to increase to as much as $3 million this year.

But Mogren, the company's information system director, said its online sales success could easily unravel if it was forced to collect sales taxes in the 1,000 or so taxing jurisdictions it sells in. At 30 minutes of processing time per tax form, it would take 500 worker hours to meet those multiple tax obligations. "We would effectively have to shut down because of the staffing requirements," he said.

However, Mogren said he sees some positive aspects in a plan being developed by a consortium of state and local government officials to create a sales-tax collection system that would eliminate administrative costs for merchants, while providing e-commerce sales-tax dollars that are now out of reach to states and cities.

This so-called "zero burden" plan will be presented by the National Governors Association, National League of Cities and other groups to the congressionally appointed Advisory Commission on Electronic Commerce Nov. 15, the commission's deadline for proposals.

Under this proposal, third-party intermediaries -- which could be credit-card companies, financial institutions or technology companies -- would handle a vendor's tax calculation and payments and other administrative burdens.

For instance, just before an online buyer completes a purchase, the shopping basket data would be sent to the tax intermediary, which would then calculate the sales-tax obligation for the buyer's town, city or county. Assuming the buyer pays by credit card, the tax payment would be sent by the tax intermediary to the buyer's state.

Vendor participation would be voluntary, but there are incentives for joining. This proposal "allows you an awful lot of freedom about how you interact with your customer -- that is the main attraction," said Harley Duncan, executive director of the Federation of Tax Administrators in Washington.

Speaking today at a U.S. Chamber of Commerce forum on Internet taxation, David Bullington, vice president of taxes at Wal-Mart Stores Inc. in Bentonville, Ark., saw potential in the that plan, while arguing strongly for tax simplification and a level playing field for all sellers.

"Why should those that are pure .com sellers have a 6% to 8% advantage?" asked Bullington, referring to the sales tax that Internet merchants don't collect in areas where they don't have a physical presence.

U.S. Sen. Ron Wyden (D-Ore.) said at today's Chamber forum that he might seek a two-year extension of an existing Net tax moratorium after a tax advisory commission completes its work to allow time for debate on its proposals. Wyden championed the Internet Tax Freedom Act in Congress, which extended a three-year moratorium on new Internet taxes until Oct. 21, 2001.

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