States Must Plan for ‘Net Sales Tax (Editorial)

The governors of 44 states want Congress to act quickly and come up with a way for them to collect taxes on Internet sales.

Three years ago, Congress, in one of its rare moments of wisdom, imposed a moratorium on Internet access taxes, like those users would pay to service providers such as America Online. It is scheduled to expire in October.

The governors want the moratorium on taxing Internet access extended but with a catch — they also want legislation that gives states the authority to tax Internet sales.

States currently are prohibited from requiring online retailers from collecting or remitting sales tax. A 1992 U.S. Supreme Court ruling said states can only require “remote sellers,” such as catalog companies and Internet retailers that have a physical presence in the same state as the consumer, to collect sales taxes.

The governors say this creates budget problems for schools, local governments and states.

“If we’re not going to collect [an online sales tax], we ought not to collect it from anyone. If we’re going to collect it, we ought to collect it from everyone,” said Gov. Mike Leavitt, R-Utah.

The problem is the thousands of separate state and local tax codes across the country that make it nearly impossible for such retailers to comply.

The governors talk about a level playing field — and rightly so. It’s anything but level, however, for Internet retailers to figure out the sales tax for every city, county and state. Local retailers don’t have to do that.

There may be software available to deal with Internet sales, but it seems to us the fair thing would be for the states to come up with a simple plan that says which items would be taxable and which items would not. Perhaps they should adopt a single rate. If they could do that, we bet Congress would listen and act.