By David Hansen, CCH Washington Staff Writer

A letter signed by at least 43 state governors the week of August 13, 2001, is asking Congress to allow a streamlined system for taxing Internet retail sales if it keeps a moratorium on taxing Internet access, says a spokesman for the National Governor's Association (NGA).

According the NGA's Jason Feuchtwanger, the letter reads:

"If you care about a level playing field for main street businesses, local governments and schools, extend the moratorium on taxing Internet access only with authorization for states to streamline and simplify the existing sales tax system."

A number of states want congressional approval to require state tax collection by online retailers. At least 18 states entered a streamlined tax collection system for Internet sales, says Feuchtwanger, with legislation introduced in 11 others.

A moratorium on multiple taxation of the Internet and of Internet access taxes will expire on October 21, 2001. Several bills are circulating through Congress to address it. They include the Internet Tax Nondiscrimination Act (H.R. 1552), which would extend the moratorium to 2006. Another bill, the Internet Tax Fairness Act of 2001 (H.R. 2526), would prohibit a state from taxing a business that wasn't physically present in it for at least 30 days.

The Bush Administration supports extending the moratorium.

Customers who buy online must report the sales tax on their year-end taxes. Yet few know that or comply, depriving state coffers of tax revenue. Feuchtwanger cited one study estimating that states could lose $14 billion in tax revenue by 2004.

The NGA hopes to get several more governors to sign before officially presenting the letter to every member of Congress, said Feuchtwanger. Governors who haven't signed include Virginia's James Gilmore, he added.

Gilmore believes that requiring Internet retailers to collect a "crazy quilt" of different state and local taxes would damage Internet retailing, said Gilmore spokesman Reed Boatright. He also believes it will be a long time until all states can agree on an e-commerce tax code, added the aide.

The letter originated at the NGA's August 2001 annual meeting in Providence, R.I., said Feuchtwanger. Utah Gov. Mike Leavitt (R) and Kentucky Gov. Mike Patton (D) circulated it, he added.

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