Taxing Decisions Face Internet

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Governors in most states support a continued ban on taxing Internet access provided Congress allows states to change the sales tax system to allow taxing online sales, Utah Gov. Mike Leavitt said Monday.

Leavitt, speaking on behalf of 42 state and two territorial governors who signed a letter to Congress, said a three-year moratorium on taxing Internet access should be extended.

A Supreme Court ruling also bans states from forcing out-of-state companies to collect sales tax, depriving states of revenue and putting in-state businesses at a disadvantage.

This should change, Leavitt said.

"The sales tax system is a mess," Leavitt said. "It needs radical simplification and streamlining."

But Gov. Bill Owens of Colorado says Internet sales shouldn't be taxed at all.

"He is 100 percent at odds with the content of that letter," Owens spokesman Dick Wadhams said.

Taxing Internet sales is a classic example of "taxation without representation," Wadhams said. States would be able to tax out-of-state companies, while those companies would have no say in the state's tax laws.

Leavitt envisions computer software, provided by the states to businesses, that would automatically calculate and remit sales taxes on Internet sales.

"Every state has different laws," he said. "It's very difficult for a retailer to know how much to collect and where to send it," he said.

But before this can happen, the states need to agree on common definitions for goods. To do this, they need Congress' approval, he said.

Although some support a single sales tax rate for Internet transactions, Leavitt said the software would likely be able to figure out varying rates from different states — provided everyone agrees to common definitions.

"It's very difficult to bring 50 states together, but if they don't, they're going to get nothing," Leavitt said. He estimates that Internet retail sales have sapped as much as $150 million in uncollected sales taxes from Utah.

Leavitt says the money is needed for schools, roads and law enforcement.

But Gov. Owens of Colorado disagrees. When a customer visits a store, that customer drives on the state's roads and enjoys the protection of local police, Wadhams said. When people shop online with an out-of-state merchant, they use none of those local services.

In other states, taxing Internet sales is not much of an issue. Gov. Jeanne Shaheen of New Hampshire is not among the governors supporting Leavitt's letter because the state has no income tax, said spokeswoman Pamela Walsh.

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