Fair tax for trade on ‘Net studied

Tuesday, Feb. 22, 2000 | 11:14 a.m.

CARSON CITY -- The chairman of the Assembly Taxation Committee is developing a plan to make sure Nevada merchants are treated fairly in competition with companies who sell tax-free over the Internet.

Assemblyman David Goldwater, D-Las Vegas, says, "Nobody wants to tax the Internet." But he has a way in which taxes already due can be collected. He hopes to convince other lawmakers to begin a pilot project.

And Sen. Mike Schneider, D-Las Vegas, who has been studying the taxing of e-commerce, says the state could face a grave financial problem with loss of revenue if sales on cyber-commerce continue to go untaxed.

Their comments came Monday on a newly released study by the University of Tennessee for the National Tax Journal, that says states and local governments will lose $20 billion in tax revenue by 2003 if Internet transactions remain untaxed.

The study suggests Nevada would have to increase its sales tax by 0.6 percent on the dollar to make up the loss of revenue on the growing number of transactions made on cyber-commerce. Sales and the gaming taxes are the two main producers of revenue for state government.

In talking about his proposal, Goldwater, a member of a task force studying electronic taxation for the National Conference of State Legislatures, says, "This is a matter of fairness."

In addition to the sales tax in Nevada is a use tax, which requires that items bought outside the state should be taxed if they are brought into Nevada for use. And Goldwater wants to collect this use tax.

A good example, he said is vitamins. A resident who purchases vitamins at a Las Vegas store pays a 7 1/4 percent sales tax, which is not assessed to those who buy over the Internet.

"There are ways to use technology to make it fair for everyone," said Goldwater who is proposing what he calls a "Zero Burden Tax Collection System." He wants to involve local business, out-of-state Internet retailers and the state Taxation Department to work out the system.

Essentially, he said a third party would be hired. When a person purchases through e-commerce, his or her credit card would be run through the third party to impose the use tax, which is at the same level as the sales tax.

In that way the Internet retailer would not have to worry about handling the tax or about audits by the state. The third party would be hired by the state. In Nevada, Goldwater said there are 200 taxing jurisdiction. And the third party would figure what is due to be added to the bill.

There's the technology to do this now, he says. The big challenge is getting the e-commerce retailers to agree. There is no incentive for them to participate. If they don't have a physical presence in Nevada, they are not now subject to the sales tax.

But these cyber-merchants might be worried they would face a "humongous" bill if the tax was ever imposed, he said. There are already a couple of these vendors who could put this system into place, Goldwater said.

He wants to get approval for a law to allow the taxation department to start talking with retailers and others and start a pilot project. Goldwater will outline his proposal March 13 at a meeting of the Legislative Commission.

This is not a new tax, but something people are not paying now. "But it doesn't mean they are not due," he said.

"There is a way to use technology to make it fair for everyone," he said.

Schneider says he's "... not advocating we tax the Internet," but suggests the state should take the lead in any proposal because of the importance to the financial structure of state government.

Schneider said Gov. Kenny Guinn is "already saying that in eight years we're out of money to fund the programs we have now." And loss of this revenue would "kill the state," in providing services, he said.

What worries Schneider also is that the federal government is looking at imposing a sales tax on cyber-commerce. "The federal government has been poking around. We want to keep the feds out because it (the sales tax) is a state revenue."

Guinn is "firmly opposed" to any federal taxation of the Internet, his press secretary Jack Finn said Monday. Finn said the governor feels this issue "warrants a lot of study" of the vast amount of information available. The governor is part of a committee of the National Governors Conference that is studying the issue, he said.

The Congress in 1998 imposed a three-year moratorium on the states taxing e-commerce. An advisory committee has been created, headed by Virginia Gov. Jim Gilmore, to study the problem. A report is expected in the next several months.

Both Goldwater and Schneider agree Nevada's taxation system needs to be modernized. Schneider said, "We've got to be prepared if our tax base is eroded. We will probably have to revamp the tax system. We're looking at the biggest change since the 1930s."

Cy Ryan covers state government for the Sun. He can be reached at (775) 687-5032.