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PrintExperts Advocate Simpler Method of Taxing Electronic Commerce
By Catherine Hubbard, CCH Washington Staff Writer
As the amount of commerce that falls outside the jurisdiction of state taxation increases, states need to find better and simpler ways to collect sales taxes on electronic commerce, according to Harley Duncan, executive director, Federation of Tax Administrators, Washington, D.C. The primary concern of states regarding electronic commerce taxes is the rapidly increasing volume of remote sales on which state sales and use taxes are not being collected, Duncan said at a recent conference.
"If the sales tax is going to survive, there needs to be some expansion in the duty to collect," Duncan said, adding that state systems for sales taxes and use taxes need to be modernized to enable states to collect their share of taxes on remote commerce. He spoke at a March 17 D.C. Bar Section of Taxation luncheon.
In addition, Duncan said Internet Tax Freedom Act of 1998 is "not very clear" about which electronic commerce transactions should be taxed. Thus, the act could lead to discriminatory treatment of electronic commerce, he said. For example, many states have enacted statutes to impose such taxes and to create some parity for information received electronically versus information received in paper form, he noted.
The act also established a 19-member commission to study taxes and tariffs related to Internet access and Internet transaction issues at the federal, state, local and international levels. However, the 19-member commission does not include the requisite number of state and local representatives.
Duncan said the commission formed under the act is "at a stalemate." He noted that the commission has not been able to work on its mission because its composition is not in accordance with the act. Meanwhile, the 18-month deadline for developing a set of recommendations by April 2000 is fast approaching, he said.
Keith Silverberg, a partner with Nixon, Hargrave, Devons and Doyle, LLP, Washington, D.C., said it is possible that the commission will not complete its report and a three-year moratorium on certain types of electronic commerce sales taxes could become extended pending further study of the issue. "Some people are viewing it that it would be nice to get an extension of the moratorium." The Omnibus Budget Reconciliation Act of 1998 included provisions that impose a three-year moratorium on taxes on Internet access charges and protect against new Internet-specific levies such as bit taxes, web-search taxes and e-mail surcharges.
Silverberg noted that the budget act does not include a carve-out for providers of electronic information databases, such as Lexis-Nexis, adding that database providers could bring a case to court, arguing that states or localities cannot collect sales taxes on sales of research database access.
The National Tax Association (NTA) has set up a commission that been meeting for two years to find ways to modernize the system for collecting taxes on sales made through telecommunications and to enable states and localities to better deal with electronic commerce and other types of remote commerce, Silverberg said. He noted that one topic under discussion is how to tax sales made by businesses that sell products to people who make their purchases through a 1-800 numbers.
Silverberg said the NTA hopes it will be able to devise a way to tax electronic commerce without placing an undue burden on businesses that operate throughout the nation. He said the commission wants to "simplify state and local sales taxes so that it's a no brainer." He noted that most businesses would not mind paying taxes on electronic commerce or telecommunications sales activity as long as none is singled out and the tax is fairly applied to all similar activities.
