E-commerce players don't expect taxes
By Brian Carroll -- Furniture Today, October 28, 2001
WASHINGTON — A federal moratorium on Internet taxes expired last week when Congress declined to extend it, but e-commerce companies in furniture do not foresee significant changes now that the ban has expired.
The moratorium prohibited Internet-only taxes, or taxes levied on businesses or business practices relying exclusively on the Internet. It did not prohibit states from collecting or attempting to collect sales or use taxes, which remains a thorny issue in Congress. Legislators cannot agree on how state sales taxes should be applied to e-commerce, and how they should be collected.
"On our site, we do not tell people that purchases made from us outside of Michigan are 'tax-free.' It's not true," said Pamela Durkin, president at FurnitureFind.com, a leading Internet furniture retailer based in Niles, Mich. "We tell them up front that they are subject to the laws of the state they live in as it relates to any taxes due. It's a matter of honesty and disclosure."
With the ban gone, it still is unlikely that state and local governments will rush to impose e-commerce taxes, especially with 7,500 different jurisdictions competing for primacy. The Supreme Court has barred states from forcing an out-of-state business to collect sales taxes unless that business has a physical presence, or "nexus," in the state, the deciding factor in Maryland's recent case against North Carolina discounter Furnitureland South, based in High Point.
However, there is great pressure within Congress and from revenue-hungry state governments and traditional retailers to authorize collection of sales taxes from out-of-state businesses. Both small-town stores and big chains have argued for these sales taxes in order to level the playing field.
"Most taxing authorities are looking for ways to make up lost retail sales tax revenues," said Bob Davidow, chief executive at Benchmark Home Furnishings, based in Olathe, Kan. "I think we will immediately fall back to the old method of requiring a 'nexus' with a local taxing authority before taxes can be collected."
The moratorium had been in place since 1998, prohibiting taxes on such activities as Internet access services. Sales taxes are levied by 45 states and the District of Columbia, but although laws in these states require consumers to pay "use taxes" when buying something from an out-of-state retailer, the laws rarely are enforced.
FurnitureFind's Durkin said most states that have a sales tax have a provision for their residents to declare items they've purchased out of state, and to voluntarily pay the taxes due. What the states generally lack, however, is "the ability to track and collect these taxes," she said.
With the events of Sept. 11 and since, Davidow doesn't expect any rush in Congress to provide clarity on these issues. The nation has other priorities.
"We are in the dark like everyone else in e-commerce," Davidow said. "I think that recent events will cause this issue to be sidelined. We are checking both locally (and) at the state level, and Emily (Davidow) is monitoring the national discussion on this subject."
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