Sales taxes are already being collected by mail order companies when the buyer happens to be within the same state as the seller company. Should the law be changed so that everybody, even out-of-state buyers, must pay sales tax on Web purchases?

It can also be argued that one has to go out of one's way to obtain a catalog before ordering from mail order companies. The Web, on the other hand, is ubiquitously available and, from that point of view, has the entire Web as customers, not just those on its own mailing list or whoever its possibly limited advertising can reach.

In 1998, Congress passed (and the president later signed) the Internet Tax Freedom Act (ITFA, (formerly known as S.442, now Title XI of P.L. 105-277, the Omnibus Appropriations Act of 1998) that imposes a three-year moratorium on taxing *Internet access. (*That means, a tax added to your DSL or cable [cable modem] or phone bill [dial-up]. This has NOTHING to do with paying sales tax on Internet purchases or not.) This moratorium on Internet access taxation was renewed in 2001. It is currently set to expire Nov. 1, 2007.

Industry has responded by setting up its own group: E-Fairness.

Sales Tax Fairness and Simplification Act [S.34 & H.R. 3396] was introduced this year in Congress [and is still in committee] by friends of industry. This act aims to collect sales taxes already on the books, not set up "new" taxes, according to its proponents.

Not to be left out, there is also the National Tax Association's Communications & Electronic Commerce Tax Project, set up as an industry-state tax initiative [that is, a neutral site].

At issue is whether it is fair or not for customers to have the choice of sitting in their den at their computers ordering whatever they want (or need) at effectively lower prices (because sales taxes are not due) to be delivered to their doorsteps in a matter of days versus customers getting out and buying those same goods at neighborhood stores, which of course must charge higher prices because sales taxes must be paid. No-brainer, right?

The neighborhood store doesn't stand a chance in this kind of business environment. However, it is also true that the postage, shipping, & handling fees imposed by many Web sites are higher than a sales tax, by itself, would have been. When you buy locally, you take delivery yourself and so no postage, shipping, or handling fees are involved. It's further true that a neighborhood store could vastly increase its sales by putting up a Web site and making its goods available to Web customers not likely to patronize its store in person for reasons of distance, if nothing else.

Either brick-and-mortar stores should also be excused from collecting sales taxes or Web businesses should have to collect the same taxes as do the neighborhood stores. However, should Web businesses start having to collect sales taxes, since they operate in all fifty states (and in about 7,000 different taxing jurisdictions total, it has been estimated), this would be a significant burden. Especially on the smallest Web businesses. Prices would perforce rise. Plus, it would be the foot in the door to government regulation of the Web. Does anyone really want that?

Web businesses wanting to comply with the law may be unable to afford expensive software (if it even can be written) to compute the various tax rates and differing revenue departments due the taxes. Is this fair? Again, no one has yet suggested that mail order companies should collect sales taxes on ALL of their catalog sales, regardless of whether their customers are in-state or out-of-state, either.

As it stands now, not only are brick-and-mortar businesses losing sales but state governments could take it in the wallet. What if, as e-commerce grows, state government sales tax collections drop, thus threatening state budgets? Texas, for example, has no state income tax. If not enough sales taxes are collected next year, who will pay for necessary state government services? (As it happens, this has not yet occurred because both mail order and e-commerce comprise such a small amount of the total spent on retail sales in a given year.)

So it behooves not only brick-and-mortar businesses faced with losing their shirts but also state government faced with losing their most lucrative source of income to find an answer to this vexing question.

Stay tuned. This is far from over.

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