The E-Tax Debate

The ring of cash registers makes merchants merry this time of year, but storeowners like Godwin Morris of New York are hearing it less and less -- partly because of the explosion in online shopping.

"I would say half of what we sell you can find easily on the Internet," says Morris, who owns a Manhattan toy store.

The Internet is where goods are practically exempt from sales taxes, reports CBS News Correspondent Thalia Assuras. It's a virtual discount that makes already-convenient online shopping even more attractive.

"We have to charge sales tax or we'll collapse. So that I find is extremely unfair, that the sales tax issue is allowing other companies to grow to my detriment," Morris continues.

That's a key issue a government panel now meeting in San Francisco is grappling with: should purchases made on the Internet be tax-free? Advocates claim without that exemption, online buying would be reduced by 25 per cent.

"Electronic commerce is America's great advantage over the rest of the world," claims Grover Norquist, of the group Americans for Tax Reform. "Why would we cripple ourselves in a race that we're winning?"

But with online sales expected to triple to $6 billion this year, that could mean staggering amounts in unpaid taxes. By 2003, state and local governments predict they will lose $10 billion annually.

That's too high a price for some, like Dallas mayor Ron Kirk, who says essential services like road repairs, and police and fire departments, would be threatened.

"The only way we're going to continue that promise is to make sure we have the revenues to keep those firemen and policemen on the streets, to keep those fire trucks rolling," Kirk says.

It is a hot political issue, from mayors to candidates duking it out in the presidential race. And it promises to get hotter once the panel makes its recommendations next spring.