Originally created 09/26/03

States, retailers ask Congress to bless system to collect sales taxes on Internet purchases



WASHINGTON -- Congress is being asked to decide whether to let states begin collecting sales taxes via Internet retailers or preserve the mostly tax-free world of virtual shopping.

Lawmakers backing the effort by state and local governments to collect taxes on Internet purchases prepared legislation for introduction Thursday that would give congressional approval for the voluntary system.

The effort, known as the Streamlined Sales Tax Project, imposes no new taxes, it just helps states capture the taxes already due, said Rep. Ernest Istook, R-Okla.

"This is not about changing taxes. It's about simplifying them," he said.

The Internet has remained a mostly tax-free shopping zone since the Supreme Court ruled that states can't force a business to collect sales taxes unless they have a store or other physical presence in the state.

While 45 states require buyers to pay taxes on Internet purchases, few states enforce those laws.

State and local governments have been working with businesses since 2000 to organize an easier way to collect the taxes. They have simultaneously established a simpler set of tax rules that keep businesses from having to adapt to the different tax customs of every state and local government. Twenty states have adopted new rules to align their laws with the tax agreement.

The National Governors Association estimates sales taxes make up one-third of state tax revenue, and state and local governments fear that tax collections will decline as shoppers turn to the Internet more often.

"Preserving local authority is critical to the ability of local government to provide fundamental services on which our citizens depend, especially at a time when local governments have been squeezed by so many fiscal pressures," said Karen J. Anderson, mayor of Minnetonka, Minn.

The federal government has taken note of the budgetary pressure on states. Congress this year approved a $20 billion payment to help states weather a stormy economy. Istook said federal help gradually draws power to Washington, though, and he would rather see the states make their own decisions about how to raise and spend tax money.

He predicted most House lawmakers would agree. "The votes are here in the House," he said.

Traditional brick-and-mortar retailers also have their eyes on lost money. They said they stand to lose money as shoppers turn to tax-free Internet purchases.