Editorial: Ban on ‘Net taxes heating up

Friday, Feb. 25, 2000 | 9:09 a.m.

Consumers understandably love e-commerce. For instance, no longer do you have to run down to the local store -- only to find out that the item you were searching for isn't in stock. The beauty of Internet shopping is that by using a computer you can search a number of website retailers to see if the clothes or toys you're looking for are in stock. If they are, then with just the simple click of a computer mouse you can place your order and have the items you purchased arrive within a few days -- if not sooner.

Another reason that consumers flock to buy from Internet companies is that they escape paying sales taxes, which they otherwise would have to pay if they bought from a local merchant. But it is this very issue -- taxation -- that is stirring a fierce debate around the nation. In 1998 Congress established a moratorium that prohibits the states from taxing e-commerce sales, a grace period set to expire in October 2001. So an argument is developing over whether that moratorium should be extended. Some, including Republican presidential candidate John McCain, have gone even further: They believe the ban should become permanent. But this prospect frightens many local and state government officials, who are concerned that this could devastate their ability to provide essential services.

A loss of sales tax revenues isn't chump change. As the Sun's Cy Ryan reported Tuesday, a recent University of Tennessee study done for the National Tax Journal says states and local governments would lose $20 billion in tax revenues by 2003 if Internet sales remain untaxed. Nevada, according to the study, would have to increase its sales tax by 0.6 percent on the dollar to compensate for this loss of revenue. Along with gaming taxes, sales taxes are a prime source of income for state government.

Equity is the hallmark of any fair tax code. Allowing Internet companies to be exempt from sales taxes, then, isn't right. First, it is unfair to brick-and-mortar merchants, who are at a competitive disadvantage. Second, it is wrong to excuse these companies -- and in turn, consumers -- from paying their contributions to local and state governments that help sustain our schools and other vital services. Third, the already regressive nature of the sales tax gets compounded even more because only those who have the wealth to own a personal computer are allowed to take advantage of buying through the Internet -- and avoid paying taxes.

Proponents of the moratorium argued that Internet retailers needed the sales tax exemption to allow them to get up and running. Well, three years is plenty of time to get their footing. By the end of 2001 they should have to compete on a level playing field with other businesses and pay their fair share of taxes. Extending the sales tax moratorium -- or even more radically, creating a permanent ban -- would be nothing but trouble for area merchants and those taxpayers who rely on local and state government services.