The Advisory Commission on Electronic Commerce – charged with providing direction to Congress with regard to Internet tax issues – closed its final meeting last month without reaching a definitive opinion or conclusion regarding that increasingly volatile issue. That the commission did not reach such a conclusion has irritated the national retail community.
National Retail Foundation (NRF) Senior Vice President for Government Affairs Steve Pfister said the commission’s work fell far short of any kind of consensus.
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“Retailers and consumers have waited for more than 18 months hoping this commission would be able to resolve the sales and use tax collection issue in an equitable, timely and detailed manner,” Pfister said. “Unable to achieve the consensus required by Congress, the commission report, instead, will contain a Business Caucus proposal that provides blatant carve-outs for a select few at the expense of retailers and low-income consumers”
Progress noted
Pfister, however, did not sound surprised by the commission’s report – given its makeup.
“Main Street retailers have been locked out of this process from day one,” he said. “Despite statutory language specifying otherwise, no traditional retailer was ever appointed to the ACEC.”
But the head of the commission sounded a much different tune – suggesting that the group in fact made great progress during its meetings. ”The commission’s final report will provide an invaluable resource to the Congress as it deliberates key Internet questions,” said Virginia Gov. James S. Gilmore, who headed the commission. “These issues will have a profound impact on every citizen of our country.”
Among its recommendations to Congress, are:
Reduce consumers’ taxation burden by repealing the federal 3 percent excise tax on telecommunications services.
Forge a meaningful pathway to simplification of the states’ sales and use taxation systems.
Permanently prohibit states or localities from taxing Internet access subscription charges.
Extend the current Internet Taxation moratorium legislated by the Congress on multiple and discriminatory taxation.
The commission also voted to clarify nexus standards that impact the obligation of businesses to collect and remit state and local taxes on remote transactions. And it voted to afford each of its members the opportunity to submit his or her distinct views on e-commerce taxation issues.
”I am pleased that we were able to come to a majority decision on these key public policy issues,” said Gilmore.
Pfister said that the NRF – the world’s largest retail trade association – opposes any solution that “creates or maintains an un-level playing field between traditional and Internet sales.” Retailers, he said, oppose any new taxes on the Internet.
”All retailers are asking for is tax equity, where the same product is taxed the same regardless of how it is ordered or delivered,” said Pfister.
Legal requirement
Right now, an Internet retailer that operates in a state that has a sales tax must collect that tax on sales it makes within its own state. It must also collect the sales tax in other states in which the company has a physical presence – known in legal terminology as a “nexus.” The company, however, is not required to collect the sales tax on sales that it makes in states in which it has no physical presence.
But that does not mean that those sales are exempt from taxes. The person who buys a product online is supposed to pay a “user” tax on that item when he files his state taxes, according to Joseph Crosby, national director of state tax legislative services for Ernst & Young LLP.
The use tax, which is usually the same as the state’s sales tax, applies once the person who bought the good puts the item to use, Crosby said, in an interview last month with the
Providence Business News. But most people don’t keep track of their purchases and don’t pay this tax, which legally they are required to do. And states do not enforce the requirement, he said.
Some Internet retailers do in fact collect sales tax on sales made in all states, even though they are not required to do so. Crosby said that states would like Congress to compel Internet retailers to collect these sales taxes.
But businesses, he said, have countered by saying that states’ sales and use taxes are inordinately complicated now and need to be simplified in order for companies to be able to collect these taxes effectively.
