Tax collectors view Net sales as easy dodge

Tax officials nationwide increasingly view the Internet as a massive tax dodge that annually costs state and local governments billions of dollars in lost sales taxes.

Missouri and 31 other states are fighting to streamline state and local sales tax laws as the first step in an effort to get Congress to require remote sellers to collect sales taxes.

A congressional moratorium on Internet access taxes -- fees that would be charged consumers to get online -- is set to expire in November 2003. While the moratorium doesn't include Internet-related sales taxes, the issue could surface in Congress as part of any discussion on whether to extend the moratorium, say those involved with the streamlined sales tax project.

Companies doing business on the Internet currently don't have to collect sales taxes because of a 1992 U.S. Supreme Court ruling that state cannot compel a company to collect taxes if that company doesn't have a physical presence in a state.

Over $1 billion in Missouri

It's estimated that tax-free transactions online are costing state and local governments $18.9 billion in lost sales taxes this year alone. A University of Tennessee study suggests the loss could total $53.5 billion a year by 2010.

Missouri, it's forecast, could lose over $1 billion in state and local sales taxes from Internet sales in 2011. Illinois could be losing more than $2 billion a year by then.

That's fine with Terry Sutton, an economics professor at Southeast Missouri State University who hates paying sales taxes.

The Cape Girardeau resident says he avoids it whenever possible, buying online from remote sellers like Wisconsin-based Lands' End, which sells fleecy sweaters and other merchandise.

"It just irritates the heck out of me to buy from places that charge sales tax," he said. "I've told my students you are better off buying on the Internet."

Ray McCarty of the Missouri Chamber of Commerce thinks estimates of lost sales tax revenue are overstated. National chains already charge sales tax to their online customers in states where they have stores.

McCarty said sales tax revenue from in-store and online purchases generated $4.4 billion for state and local governments in Missouri in 2000. He said forecasts of billions lost are unrealistic. "That's crazy," he said.

H. Weldon Macke, Cape Girardeau's retiring county auditor, doesn't agree.

Macke estimated that Cape Girardeau County government currently is losing half a million dollars from Internet transactions in which customers don't pay sales taxes.

Cape Girardeau County government increasingly is faced with tight budgets. The county government expects $9.5 million in taxes and other revenue next year, much of it from sales taxes collected by stores. Macke said he'll have to cut about $900,000 in funding requests from county departments to balance the budget.

But streamlining sales taxes won't be easy, McCarty said.

The National Governors Association, which has backed the effort, says the nation has 7,500 state and local taxing jurisdictions which makes for an antiquated, complicated and cumbersome system for levying sales taxes. For example, orange juice is defined as a fruit and is taxed in one state, but is considered a beverage and not subject to sales tax in another state.

Supporters of the effort say that a streamlined sales tax system would be the first overhaul of the nation's tax policy in 40 years. Earlier this month, delegates from 32 states, including Missouri, approved a model agreement to streamline sales taxes.

The agreement, which would take effect as soon as 10 states enact laws, would establish uniform definitions for taxable goods and require states and local governments to have one statewide tax rate for each type of product by 2006.

McCarty and the Missouri Department of Revenue's Ken Pearson said a new Missouri law doesn't require the state to adopt any of the streamlined tax proposals but only to participate in the discussions.

Not ready to comply

McCarty and other chamber officials worry that the project could burden existing business with added paperwork and drain revenue from counties and cities that are retail hubs.

"We are not ready in Missouri to comply with this type of agreement," he said.

One of the biggest problems with the agreement is that it stipulates that sales taxes would be based on where merchandise is delivered, not where the customer bought it as is currently done in Missouri. That's in contrast to most states, which distribute sales taxes to the government jurisdictions where the customers live, McCarty said. To go to such a taxing system in Missouri could be a procedural burden on many retailers, he said.

For counties that are huge retail hubs, such a practice could drain badly needed finances for local governments, he said. "Cape Girardeau County, for example, would lose money," he said.

McCarty said he and other business leaders aren't sold on any particular taxing system when it comes to Internet sales. But he said remote sellers and those who have stores in Missouri need to be treated equally.

Wesley Kinsey sells muffins and other bakery items at his downtown Cape Girardeau store, My Daddy's Cheesecake, and ships orders from his Web site to all 50 states. His non-Missouri customers who order over the telephone or via the Internet don't pay sales tax.

Kinsey said computer programs today can automatically figure sales taxes for different states, making it less burdensome should businesses have to start charging out-of-state customers.

"It is just a little more paperwork to keep up with," he said.

But Kinsey isn't on the tax-Internet-sales bandwagon. "I am never in favor of any type of tax," he said.

Lorena Gebhardt of Oran, Mo., routinely buys children's clothes from The Gap and Old Navy online stores. But since those companies have outlets in Missouri, she is charged sales taxes on her purchases.

Gebhardt said sales taxes aren't an issue one way or another in her decisions to buy online.

She said she buys over the Internet because those companies don't have stores in Southeast Missouri and she can get good deals on clothes.

That's important, said Gebhardt, who has four children, ages eight months to 11 years.

"I keep stuff in the electronic shopping bag until I have a good $40 or $50 in items," she said. "I don't order unless I have a big enough order to warrant the $6 or $7 shipping charge."

mbliss@semissourian.com

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