Where I Stand — Mike O’Callaghan: Threatened tax dollars

Sunday, May 7, 2000 | 8:40 a.m.

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

Nevada Gov. Kenny Guinn can see the end of prosperity as we have come to know it during the past several years. At the very least, there is good reason to believe that the flow of tax dollars will hit a plateau if it doesn't slide downward. In the face of this probability, the governor has said he will not consider any tax increase without a financial crisis facing the Silver State.

But what about a tax shift? Not a tax shaft like the one passed in 1981 to fend off a threatened drive to cut back on the taxes then being provided. Large numbers of governors, including Guinn, recognize the increased use of the Internet for sales will become an expensive load for their states. This problem is serious because Congress has banned taxes on these sales. Sales taxes provide a large part of Nevada's general fund and provide 40 percent nationally to state treasuries.

Eight years ago the U.S. Supreme Court ruled in Quill Corp. vs. State of North Dakota that states couldn't collect taxes on out-of-state mail order sales. The justices did allow for Congress to authorize such state tax collections. Naturally, congressional leaders haven't had the need nor the guts to pass this authorization. Because of a very healthy economy there has been no outcry for the need of those uncollectable dollars.

The inability to collect taxes on Internet sales may become too big a denial for the states to swallow and digest. Tax-free shopping on the Internet, in addition to draining tax dollars, is also unfair to local retail stores and residents who don't shop online. It's a double-edged sword that cuts the poorest 20 percent of Americans who today are spending 3.5 percent of their salaries on sales taxes.

The congressional ban on Internet sales taxes hits Nevada exceptionally hard. Last year, nationally, the losses to states were $1 billion and by 2003 these losses could climb to $14 billion. Despite this, there is a drive in Congress to permanently ban any taxes on Internet sales. One bill asks for the ban to be extended until at least 2006.

Many governors, including leading Republicans, foresee the danger this tax ban poses for their states. None of them view a tax on Internet sales as being a new tax but rather the shift of a present tax over to where the sales are now being made. Some governors, who don't want to be branded as supporting a "new" tax, are foolishly suggesting their present sales taxes be expanded to include services, food and medicine to make up for the losses to the Internet.

GOP governors Tommy Thompson of Wisconsin, Tom Ridge of Pennsylvania and John Engler of Michigan are among the leaders wanting the tax ban to be ended instead of extended. Guinn, like all of the governors, doesn't want the federal government to tax the Internet sales. He is unwilling to advocate that Nevada have the power to collect the sales taxes it may lose to the Internet. In February he told me he wants to study it some more. Friday, according to a staff member, he was still studying it.

Two Democrat legislators from Las Vegas, Assemblyman David Goldwater and Sen. Mike Schneider, long ago saw the revenue wrecking ban as a threat to the state treasury. They also understand the damage and hurt that Nevada's small retailers will suffer if their customers must pay sales taxes that Internet buyers don't pay. Both men are working on constructive answers to these problems.

What's going to be interesting during the coming months is Guinn's drive to kill the gaming tax initiative of Sen. Joe Neal and the business tax initiative of the teachers. At the same time that Nevada sales tax revenues are threatened by online buying, he is talking about a possible broader base for the present sales tax. It may be difficult for him to ignore losses to the Internet and ask that Nevada sales taxes be extended to services provided by businesses.

The 2001 Legislature will be called into session in less than nine months and the legislators and governor will face some revenue problems they didn't have to solve or didn't even recognize in 1999.