MLMIA: Update on E-Commerce Sales Tax Debate
By Marcie Cook
The debate over collecting state and local sales taxes on electronic commerce transactions (i.e., sales conducted over the Internet or "e-commerce") heated up in December. At a meeting of the federal Advisory Commission on Electronic Commerce, a group of governors, state legislators, county officials and mayors asked the Commission not to recommend to Congress that e-commerce be made exempt from sales taxes.
Congress established the Commission in 1998, after enacting a three-year moratorium on any new Internet taxes. The Commission is charged with finding a solution to the problem of collecting existing sales taxes on e-commerce. It is supposed to make its recommendations to Congress by April of this year.
As reported last month in Small Business Tax News, the Commission is considering a proposal by its Chairman, Virginia Governor James Gilmore, to make buying online tax-free. State and local government officials that oppose this proposal warned the Commission that if e-commerce is made tax-exempt, they would probably have to raise local income and property taxes to make up for the lost revenue. They also warned that traditional "bricks and mortar" businesses would suffer if online purchases where made tax-exempt.
The coalition of state and local government officials (including the National Governorsâ Association, National Conference of State Legislatures, U.S. Conference of Mayors) are advocating for an alternative proposal that would allow e-commerce sellers to voluntarily collect sales taxes with the help of a third party clearinghouse. In exchange for participating in the program, the merchants would receive immunity from certain tax audits. No new taxes would be imposed. Instead, the process of collecting existing taxes would be simplified.
Under current law, retailers do not have to collect sales taxes when they ship goods onto states where they do not maintain a substantial physical presence, such as a store or warehouse. However, in the 46states that have a sales tax, consumers are supposed to pay a "use" tax equivalent to their local sales tax on goods bought out of state. Few people actually pay any use tax so most out-of-state purchases are effectively tax-free. The proposal by the state and local government group would address this problem ö both on and off line.
Business representatives who are serving on the Advisory Commission generally support this proposal. It is unclear whether they are in the majority, however. The 19-member commission does not appear to be any closer to agreeing on a solution to collecting sales taxes on e-commerce then it was when it started almost a year ago.
The Commission will hold itâs final meeting in March. Some commentators expect it will punt and recommend that Congress make the decision about whether to collect sales taxes on e-commerce.
Marcie Cook is the CEO of America's MLM Consultants (http://www.mlmconsultant.com), one of the Premier Network Marketing consulting companies worldwide. She is also chairperson of the 1999/December 2002 Legislative Council.
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