Internet taxes get congressional scrutiny

WASHINGTON -- It's not often that IT issues get addressed directly by Congress, but a hearing yesterday to consider extending an Internet access moratorium, due to expire in October, spotlighted systems issues that one of the largest e-businesses, Inc., would face if it's required to collect sales taxes on online sales.

The House Judiciary Committee's Subcommittee on Commercial and Administrative Law is considering two bills to extend the ban on Internet access taxes. One would extend the initial three-year moratorium by another five years; the second would make it permanent.

Although neither bill addresses the contentious sales tax issue, it nonetheless emerged at the center of the debate. Extension of the access tax moratorium is viewed on both sides as implicit support for a continued ban on the collection of sales taxes for online sales.

At the hearing, the committee heard from a top Amazon official, Robert Comfort, and two Republican governors who stand on opposite sides of the issue: Virginia's James Gilmore, who adamantly opposes any obligation by sellers to collect sales taxes in jurisdictions where they now have no obligation, and Michigan's John Engler, who is among the leaders of an effort to simplify and streamline tax systems as a first step toward universal tax collection obligations for all businesses.

The hearing's IT focus grew out of comments by Rep. Anthony Weiner (D-N.Y.), who said he believes that the "technological burdens" associated with tax collection have been "widely overstated."

Directing his point at Comfort, Amazon's vice president of tax and tax policy, Weiner claimed that if Congress passes a law requiring sales tax collections, "you'll have five vendors on your doorstep the day after, with software that they've already written to allow you to do it just by entering the five-digit ZIP code."

Comfort disagreed. He said Amazon has been talking with the companies trying to write just such programs. So far, he said, they haven't been able to produce a system, even with Amazon's help, that could handle multiple ZIP codes or solve problems with allocating coupons and discounts, varying shipping costs, state tax holidays and other concerns.

Moreover, said Comfort, the cost of such a system would be in the high six figures. The "biggest burden would be in the diversion of existing IT resources, our software engineers," he said.

Amazon isn't opposed to collecting taxes in jurisdictions where it now isn't required to do so, Comfort said. Under current court rulings, a business isn't obligated to collect sales taxes from customers in any particular state unless it has a physical presence in that state.

"Main Street retailers are concerned that taxes aren't being collected on e-commerce transactions, and they regard that as the unleveled playing field. Remote sellers, however, face this welter of ... jurisdictions with widely conflicting rules about what's taxable, what's not taxable," said Comfort.

"If that system can genuinely be simplified and streamlined ... then we believe it would not be unfair," he said. Those comments echoed similar testimony made in March before the Senate Commerce Committee (see story).

Engler called the moratorium "a nonevent" because no state is seeking to level new taxes on access to the Internet. Although 10 states had grandfathered access charges prior to the current moratorium, not all are collecting access taxes.

Engler said he wants support and recognition in Congress for efforts to simplify taxes. "I think we deserve the opportunity to try to work it out, and that's what we're asking for," he said.

Gilmore said there's nothing wrong with states trying to simplify tax systems. But he also said new tax collection requirements could weaken Internet-based businesses, an industry that "is creating new jobs, new assets and new resources which yields more revenue for the state anyway."

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