Lawmakers express support for Internet sales tax

IDG News Service - Several members of the U.S. House of Representatives Judiciary Committee voiced support Wednesday for legislation that would allow states to collect sales tax on Internet purchases.

Several lawmakers, joined at a hearing by representatives of Amazon.com and a Michigan musical instrument seller, called for Congress to pass one of three bills that would allow states to collect sales taxes from Internet-based sellers with no operations within their borders. Since a 1992 ruling by the U.S. Supreme Court, states are now allowed to collect sales taxes from sellers with no physical presence within their borders.

Internet sellers that don't have to collect sales tax have a 6% to 10% price advantage over retailers that do, witnesses told the committee. "Over the last 19 years, technology has advanced in the marketplace to the point that physical presence can largely be controlled and isolated to a few states, while selling to many states," said John Otto, a Republican state representative from Texas. "If action is not taken ... then are we not picking winners and losers within the retail sector?"

Although past attempts to allow Internet sales tax collections have failed, the debate may have shifted. Much of the debate at Wednesday's hearing centered around the size of a small-business exemption for an Internet sales tax, not whether Congress should allow the tax.

"The question really is, how do we do it as fairly as we can?" said John Conyers Jr., a Michigan Democrat and sponsor of a bill to allow states to collect the tax.

In 45 states, customers who buy products on the Internet are supposed to keep track of their purchases and pay taxes to their state government, but a small percentage do. Conyers questioned whether states were currently taking enough action to collect the taxes owed them.

As the Internet has matured "there is an argument for letting states decide" whether to collect sales taxes, said Representative Mike Pence, an Indiana Republican. If Congress approves Internet sales tax collection, it should allow no new taxes and it should not create undue burdens on businesses, he said.

Internet sales taxes would create a heavy burden for small businesses selling products online, argued Patrick Byrne, chairman and CEO of Overstock.com. An inexpensive, off-the-shelf software package that small businesses could use to collect sales taxes doesn't exist, he said.

Overstock.com recently spent $300,000, plus "months" of IT employee time to roll out a software package in anticipation of opening facilities in Kentucky, Byrne said. Inexpensive software that backers of an Internet sales tax say exists is "vaporware," he said.

A requirement to collect sales tax would hurt small businesses while giving an advantage to "big box" retailers, Byrne said.