To tax or not to tax

Nov 01, 2000 10:30 PM  By

Key bills: who sponsored what Despite a flurry of behind-the-scenes lobbying concerning the moratorium on taxes from sales placed over the Internet, it’s not likely that legislation will pass to alter the moratorium before its scheduled expiration in October 2001 – except possibly California. As of late September, The Internet Discrimination Act (H.R.3709), a bill passed by the House of Representatives in May that would extend the current moratorium on Internet sales taxes through 2006, remains held over in the Senate.

Jerry Cerasale, senior vice president of government affairs for the Direct Marketing Association, doesn’t think the Senate will pass the moratorium extension, given that the Internet Tax Elimination Act (S.1611), sponsored by Sen. John McCain (R-AZ) in September 1999, has been languishing in the Commerce Committee for a year. S.1611 also seeks to extend the moratorium on goods sold via the Internet, thereby keeping the Internet a tax-free zone.

On the issue of Internet taxation, the sides are divided not along party lines but rather by state. For example, senators and representatives from states such as California, Massachusetts, Virginia, New York, and Oregon support extending the Internet tax moratorium, Cerasale says, since each has a significant concentration of Internet companies. Congresspeople from states in which the Internet is not big business or that rely heavily on sales taxes, such as Florida, Nevada, Utah, and North Dakota, favor requiring companies to collect taxes on remote sales.

A hotly contended issue Given the volatility of Internet taxation, it’s not surprising that presidential candidates Al Gore and George W. Bush have avoided addressing the issue directly.

But California’s state lawmakers aren’t as shy. On Aug. 30 the state’s assembly and senate passed a bill introduced by Democrat Assemblywoman Carole Migden) that would require companies with stores in California to collect local sales taxes on products they sell via the Internet. As of mid-September, the bill still sat in Gov. Gray Davis’s office unsigned; according to a spokesperson for the governor, Davis generally doesn’t favor Internet taxation. The DMA’s Cerasale doesn’t expect him to approve the bill.

Roscoe Starek, the DMA’s senior vice president for the catalog industry, adds that if Davis were to sign the bill into law, the new tax would likely be challenged in court as unconstitutional. In the meantime, passage of the bill would encourage other states to introduce and pass similar legislation, and could even have international trade ramifications.

Already the European Union is trying to force U.S. companies to collect its value-added tax (VAT) on Internet sales to EU residents, Cerasale says. “I’d hate to be a small cataloger with an Internet site and be forced to collect taxes from customers in, say, China who decide to buy off the site,” he adds.

Because Governor Bush and his running mate, Dick Cheney, “seem to understand business better than the Gore campaign,” says ROGER HEINS, vice president of sales and marketing for Mount Vernon, WA-based floral and plant wholesale cataloger Etera, he plans to vote for Bush. Gore appears to support controls and restrictions that would not favor direct marketers, he says.

“I would have a hard time telling which candidate is better for us on which issue,” says PETE RICE, vice president of marketing for Madison, VA-basedhome and garden products cataloger Plow & Hearth. “I am personally leaning toward Al Gore, but that’s a nonbusiness/individual opinion. Issues that impact our business – postal reform, privacy legislation, Internet taxation, use tax, and use of the budget surplus – represent a complicated mix of state and federal politics, and we do not, as a business, strategize at all around legislative or political issues.”

The health and well-being of the U.S. military forces is key to sales at Radcliff, KY-based military supplies cataloger U.S. Cavalry. As a result, president/CEO RANDY ACTON supports Bush for president. The size of the military has shrunk during the past couple of years, he says, “but I believe the Republicans are building back up the military.” Whereas sales to military personnel used to make up 60% of U.S. Cavalry’s overall business, they now make up just 40%.