States eye online sales tax

California losing $200 million or more annually on Net sales

SACRAMENTO — As states across the country struggle with budget deficits in the billions, many officials are beginning to eye sales taxes on online shopping.

By Jim Wasserman, Associated Press Oakland Tribune

In California alone, collecting such taxes could yield at least $200 million yearly. Nationally, local and state governments could raise billions.

"We can no longer ignore an entire segment of the retail marketplace," said Pat Leary, lobbyist for the California State Association of Counties and a frequent online shopper herself.

Internet shopping is expected to climb to $40 billion this year, from last year’s $30 billion, according to New York-based Jupiter Research. It could reach $105 billion within five years. This year’s total includes $10 billion for computers and accessories, $4.7 billion for clothes and $2.8 billion for books.

And much of that is untaxed.

Many online retailers balk at having to compute the hodgepodge of local and state sales taxes across the nation. Most customers, in turn, duck their duty to pay the sales tax themselves. And most states do not go after them.

But the issue is taking on new urgency in state capitals, where last fiscal year, governors collectively sliced $13 billion from state programs and are preparing to cut billions more.

Collecting sales taxes won’t be easy, though.

Under a U.S. Supreme Court decision, a state cannot force a business to collect sales taxes unless it has a phys- ical presence in that state, such as a store.

Though Congress could authorize states to collect these taxes for other states, lawmakers have never done so and in fact have approved a moratorium through Nov. 1, 2003, on Internet-only taxes. With California facing a record-breaking projected deficit of $35 billion, Internet sales taxes are among the options on the table, said Hilary McLean, a spokeswoman for Gov. Gray Davis.

Even if Congress does not enact legislation, the state can at least force retailers with stores in California — such as Borders and Barnes & Noble bookstores — to collect taxes on Internet sales to state residents. Those stores currently do so for a few states, but not California.

Two years ago, when the state had a huge surplus, Davis vetoed a bill with such a requirement, saying it would send the wrong message to an emerging marketing medium and robust job generator.

The estimated $200 million that could be raised from online sales taxes in California may seem like small change compared with the deficit. But the money could, for instance, stave off a controversial cut that has been proposed: $201.8 million in health care for the poor. Or the revenue could be spread out to reduce the magnitude of cuts in several programs.

Estimates vary widely on how much governments are losing.

One widely cited study by the University of Tennessee says states, cities and counties nationwide lost $13.3 billion in revenue last year from uncollected e-commerce sales taxes.

Another study, for the Utah-based Institute for State Studies, predicts annual losses up to $45 billion by 2006. By that analysis, California last year lost $1.75 billion in revenue, while Texas and New York followed with about $1 billion each. Many states are trying to make it easier for companies to compute online sales taxes for them. Utah Tax Commissioner R. Bruce Johnson hopes within a year that at least 10 states will create a simple, single statewide sales tax rate.

He has tried to enlist Wyoming, North Dakota, Ohio, Michigan, Florida and North Carolina in his campaign.

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