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May 9, 2001
Internet Sales Tax May Be Coming
A variety of bills proposing solutions for online taxation are being considered in Congress

In 1999, state governments lost more than half a billion in sales-tax revenue because of purchases made on the Internet, Forrester Research found. According to Jupiter Media Metrix, in 2005 – if laws stay the same – state and local governments risk losing up to $7.7 billion in tax revenue from online sales.

Retailers aren't in a better position either. Many retailers with online and offline presences risk losing online customers because they have to collect sales tax on goods shipped to certain states, while Internet-only retailers do not. Internet-only retailers are exempt from taxes in states where they don't have a physical presence, but that may change soon.

Currently, more than six bills relating to Internet sales tax are under consideration in the U.S. House and Senate. Congress knows it must enact a standard for Internet taxation, but members have yet to agree on what that standard should be. Sen. Ron Wyden (D-OR) introduced a bill in the Senate that would make it harder for states to collect sales tax from out-of-state merchants. Sen. Byron Dorgan (D-ND) introduced another bill, but his outlines a plan to make it easier for states to collect taxes on Internet transactions. The two are under pressure from the Senate Commerce Committee to combine their bills into one, and it's expected they will compromise and create a new bill during the next few weeks.

A similar situation exists in the House. Rep. Ernest Istook (R-OK) introduced a pro-Internet taxation bill, and Rep. Chris Cox (R-CA) introduced an anti-Internet sales tax bill. It's expected these bills will be combined soon as well. In addition, two more anti-Internet tax bills are in the Senate right now, one proposed by Sen. George Allen (R-VA) and the other by Sen. Judd Gregg (R-NH).

The flurry of proposed Internet tax legislation has come about because the current moratorium on new or discriminatory taxes for the Internet ends in October. If Congress fails to act by then, states will be free to devise ways of getting tax revenue from the Internet. Most likely, Congress will agree to extend the moratorium for at least 4 more years. The question then is whether Congress will agree create a system for Internet tax collection or whether the issue will be shelved for a few more years. Lawmakers on both sides of the issue, though, agree that states will need to simplify their sales tax regimes before they can collect sales tax from out-of-state Internet retailers.

- by Julia M. Duncan