NO SALES TAX POT OF GOLD AT END OF INTERNET RAINBOW, DMA SAYS

“Pot of gold” enticing states to tax sales by remote e- merchants doesn’t exist, Direct Mktg. Assn. (DMA) CEO Robert Wientzen said Thurs. Lost 2001 e-commerce sales tax revenue was about $2 billion annually, not $13 billion projected from seminal U. of Tenn. study, DMA economist Peter Johnson said in critique.

Tenn. research vastly overcounted e-commerce sales base and multiplied it by a bubble-era growth rate, Johnson said. He said study lacked benefit of later Commerce Dept. data that only 5% of electronic business-to-business (B2B) sales were conducted on Internet. Rest don’t belong in uncaptured-tax discussion because it’s done via electronic data exchange (EDI), which states have a handle on, Johnson said. Earlier research presumed 38% annual growth in e-commerce, whereas Commerce figures showed 16% increase in consumer sales and 11% in B2B, he said.

Opponents quickly fired back. Internet sales outgrew store sales 28.2% to 1.6% in 2002, e-Fairness Coalition said, also citing Commerce data. It quoted General Accounting Office as saying uncollected sales taxes on all remote sales could hit $20 billion this year.

Remote taxation would work much better than expecting consumers to remit use taxes voluntarily, and would level the playing field between stores and e-tailers, coalition said. At DMA event, though, Pres. Peter Rice of 1-800-Flowers unit Plough & Hearth said status quo benefited not remote sellers but local merchants, since sales taxes they collected typically ran lower than shipping costs.

States could capture much uncollected revenue by pursuing, under existing law, e-commerce affiliated with in-state stores -- especially considering dominance of bricks-and-clicks models after dot-com bust, merchants said at news conference. They said that would leave little incremental revenue to be gained from pure-play remote e-tailers to justify scrapping traditional “nexus” requirement for taxation and imposing severe computational burdens of sorting out thousands of U.S. sales tax rates, merchants said.

Multistate Streamlined Sales & Use Tax Agreement leaves taxation far too complex from one jurisdiction to another, Federated Dept. Stores Operating Vp Frank Julian said. Current 7,600 local rates theoretically could double if all states took advantage of provisions allowing 2 statewide rates and unlimited local ones, he said.

Software to administer system envisioned doesn’t exist, Julian said. He acknowledged companies were coping with existing rate variations, but said it was an excessive expense for many merchants. Online affiliates of Target, Toys “R” Us, Wal-Mart and others started collecting sales taxes in many states last month in exchange for immunity on past exposure. Merchants at news conference divided on whether they opposed remote taxation on principle or whether they would support what they considered genuinely simplified taxation, such as a single rate per state.

States grappling with streamlined agreement are adding complexities to national model, Julian said. Wash. legislature scrapped standardized tax-sourcing rules to maintain its system of taxing at in-state point of origin, such as a distribution, rather than destination, and Texas has similar issues, he said. “They've got their simplification face on but they're not really simplifying,” he said. Besides, foreign govts. would be tempted to jump in and start taxing U.S. e-tailers’ sales to their residents, DA’s Wientzen said.