Senate eyes sales taxes for online purchases

Computerworld - Though similar proposals have failed in the past, an effort is under way in Congress to force online retailers to collect sales taxes for all purchases made over the Internet.

The latest measure, known as the Sales Tax Fairness and Simplification Act, was introduced Tuesday by Sen. Michael Enzi (R-Wyo.), who unsuccessfully pushed a similar bill in 2005.

Elly Pickett, Enzi's deputy press secretary, said the bill would set up the administrative mechanisms needed to collect and distribute sales tax payments to the states.

Under existing law, state sales taxes are collected by online retailers only when the company has an actual brick-and-mortar store, warehouse or office in the state where the purchase is being shipped. Although buyers are supposed to pay state sales taxes on such purchases -- even when the taxes aren't collected by the online retailer -- few do.

The Enzi bill would put online retailers on the same playing field as local retailers who collect sales taxes, Pickett said. The proposed bill would exempt online businesses if their annual revenue is below $5 million.

"[Enzi] is not proposing a new tax being collected," Pickett said. "He just wants a way to make the online retailers [charge] the same as the small business down the street. These online retailers are just skirting around the online sales tax collections."

Enzi has been working on closing the gap since he arrived in the Senate in 1997, she said.

Supporters say that having an official collection mechanism in place would benefit states by giving them revenue already due to them. David Quam, director for federal relations for the National Governors Association in Washington, said his group supports Enzi's efforts.

"Those taxes are due and owing, but they're not being collected," Quam said. "We think Congress should cooperate with the states ... to require those collections."

Opponents, however, say such taxes won't amount to enough to make the effort worthwhile. The "vast amounts of money that supporters say are being lost probably aren't going to materialize," said Peter Sepp, a spokesman for the Alexandria, Va.-based National Taxpayers Union. "We don't believe there's a great deal of revenue to be had through this experiment."

In addition, he said, the bill's exemption for small businesses could be a slippery slope for state tax collectors. "Once the trap has been set and put in place, it's very easy to lower the threshold later" and force small businesses to collect sales taxes on online purchases, Sepp said.

Having an arbitrary limit might also force small businesses to limit their growth, he said.

The future of the legislation is still very much up in the air, Sepp said. "It's easy for the pundits to say that because the Democrats control the Congress that the political climate for this is ripe to pass it, but I wouldn't count on it."