M3 Sweatt

CNET News reports today that Internet taxes could arrive by this fall in the US if the discussions in Congress are successful.

“State and local governments this week resumed a push to lobby Congress for far-reaching changes on two different fronts: gaining the ability to impose sales taxes on Net shopping, and being able to levy new monthly taxes on DSL and other connections. One senator is even predicting taxes on e-mail.

“At the moment, states and municipalities are frequently barred by federal law from collecting both access and sales taxes. But they’re hoping that their new lobbying effort, coordinated by groups including the National Governors Association, will pay off by permitting them to collect billions of dollars in new revenue by next year.

“If that doesn’t happen, other taxes may zoom upward instead, warned Sen. Michael Enzi, a Wyoming Republican, at a Senate hearing on Wednesday. “Are we implicitly blessing a situation where states are forced to raise other taxes, such as income or property taxes, to offset the growing loss of sales tax revenue?” Enzi said. “I want to avoid that.”

Really? Which taxes will go up if this is not passed? In Washington state this year, there is a significant state tax surplus projected at $2.2 billion, being used to increase “school funding, health care, environmental protection and higher education.”

It leaves $724 million unspent, part of it in a hard-to-tap “rainy day” account that lawmakers are asking voters to create this fall. The fund, essentially a forced savings account of 1 percent per year, was the only aspect of the budget that drew support from minority Republicans on Tuesday. GOP lawmakers believe Democrats overspent and set the state up for a deficit in a few years.

Since the late 90’s this has been a hot topic.

“State and local governments, which are already losing $3-4 billion in sales tax revenues a year from their inability to tax most mail-order sales, would lose billions more. Numerous studies project $300 billion-$500 billion in combined consumer and business purchases over the Internet by 2002.”

As reported in the Washington Post in mid 2005, at stake are “billions of dollars a year in revenue that currently go uncollected.” In 2004, according to the Post, “the National Governors Association and the National Conference of State Legislatures estimated that state and local governments lost $15.5 billion to $16.1 billion in 2003 from untaxed Internet sales.”

“The states supporting the online sales tax effort believe a successful run of their voluntary program may encourage Congress to pass legislation to overturn a 1992 Supreme Court ruling. In that decision, the justices said mail-order merchants, and, by extension, online retailers, did not need to collect taxes for sales into states where they did not have a physical presence, such as a store or shipping center. The high court reasoned that subjecting out of state merchants to such a myriad of disparate tax laws would place an undue burden on interstate commerce.”

For one side of the argument, see this blog post from the Progress & Freedom Foundation, a public policy think tank. On the flip side, visit the site of the Streamlined Sales Tax Project, established to “assist states as they administer a simpler and more uniform sales and use tax system,” and includes 21 states on its governing board (at two levels of membership).

Whether you agree or disagree with the change to net taxes, what can you do?

Write to your state and federal government officials and let them know: in the States, you can find more information on contacting your senators and representatives in DC by going to http://www.usa.gov/Agencies/Federal/Legislative.shtml. The EFF also maintains a website to help you contact US policymakers: http://www.eff.org/congress/.