Where I Stand — Mike O’Callaghan: Tax problem on the way

Thursday, Feb. 24, 2000 | 9:20 a.m.

Mike O'Callaghan is the Las Vegas Sun executive editor.

Another study has flashed warning lights to states like Nevada that rely on a sales tax to provide education and other services. While some members of Congress plan to extend the sales-tax-free status of Internet sales, others are pushing for a permanent ban on any such taxes. Among the leaders for the permanent ban is Sen. Ron Wyden, a Democrat from Oregon, where there is no state sales tax.

Nevada Gov. Kenny Guinn hasn't taken a position on the permanent ban of taxes on the Internet, but opposes any federal tax on it. The governor does see funding problems for our state in the near future.

If the retail buying over the Internet continues to grow at the present rate, it can cut deeply into Nevada's sales tax collections. As a matter of fact the study done by professors William Fox and Donald Bruce point to the Silver State as one of the 12 states to be most seriously affected by a permanent ban on Internet taxation. The economist for the National Conference of State Legislatures believes that sales on the Internet cost states $1 billion in lost revenues in 1999. By the year 2003 this state revenue loss could jump to $14 billion.

Tax-free shopping on the Internet, in addition to draining away tax revenue from states, is unfair to local retail stores and to taxpayers who don't shop online. A recent article in Business Week magazine tells readers that, "To compensate for the loss in tax receipts, which contribute about 40 percent of state revenues, governments may have to raise sales taxes. The burden would fall most heavily on people who don't shop online: The poorest 20 percent of Americans -- those earning less than $25,700 per household -- who already pay about 3.5 percent of their income in sales taxes. By contrast, the top 20 percent earners, who make $75,000 or more, pay just 1.3 percent. The more these upper-income shoppers buy at the virtual mall, the less they'll contribute to the cost of running public schools, hospitals, and police departments."

How to solve this rapidly approaching problem has resulted in suggestions and legislation that goes from one extreme to the other. A Virginia legislator supports doing away with all sales taxes if Internet taxes aren't imposed. Another suggestion is to tax the sales of everything including services, food and medicine to make up for the loss of revenue to the Internet. Both suggestions are extremes, but it points to the gravity of the revenue problems the Internet will bring to many states, including Nevada.

Sun writer Cy Ryan in a recent article tells us that both Assemblymen David Goldwater, D-Las Vegas, and Sen. Mike Schneider, D-Las Vegas, are working to meet this latest challenge to the state treasury. Both of them realize there is little time to waste as the train carrying revenue problems is coming down the track and it may demand the revamping of our entire state and local tax system.

Often overlooked is the damage and hurt being suffered by the small retailers who raise families and support schools, churches and social groups in and around our cities. Few public officials really cared when large shopping malls and chain stores killed the retailers on Main Street. Those family stores that had given us services for several generations were easily brushed aside because the tax dollars continued to flow. The challenge of e-commerce is beginning to hit some states, counties and cities in the pocketbook and can only be ignored by fools.

There's enough information available to know that action is necessary now. More studies aren't necessary and neither is an extension of the ban on Internet paying its fair share.