States see Internet sales tax as budget boost

By Joe Schoenmann (contact)

Monday, Sept. 8, 2008 | 2 a.m.

After eight years of work, Nevada and 21 other states’ efforts infuse their depleted coffers with millions of dollars is finally in the home stretch — and has hit a wall.

“What we are waiting for is for Congress to say, ‘OK states, you can do this,’ ” said Dino DiCianno, executive director of Nevada’s Taxation Department. “Of course, there are always different views on issues like this.”

“This” is the streamlined sales tax, or SST for short. The acronym really ought to have an “I” in it, because the end result would let states collect taxes on Internet sales.

So, the SST’s inability to get off the ground is good for consumers, but bad for state governments.

The rationale behind the push to tax Internet sales is pretty straightforward: While sales at bricks and mortar businesses have diminished, Internet sales “have increased tremendously,” DiCianno said.

In 2005, University of Nevada, Reno, researchers estimated the state lost about $50 million in taxes it did not collect from sales over the Internet in 2003. It further estimated that lost revenue in 2008 “could easily exceed $96 million.”

Professor William F. Fox, director of the University of Tennessee’s Center for Business and Economic Research, has studied Internet sales tax issues for years and says those unpaid taxes not only put bricks and mortar businesses at a disadvantage, they act as a massive tax subsidy to online businesses.

The cost of that subsidy — tens of billions of dollars nationwide, according to the University of Tennessee study — spurred Nevada and 21 other states to spend eight years drafting and working out a complicated agreement that they hope will push Congress to enact the Sales Tax Fairness and Simplification Act. The legislation would change the definition of a “nexus.” That little word is important because the U.S. Supreme Court has ruled that unless a retailer has a physical presence, “a nexus,” in a state, that retailer does not have to collect taxes on shipments made into that state.

That means when a Las Vegas resident orders a polo shirt or CD online from a company that has no physical presence in Nevada, sales tax is not required. If the SST became law, however, no matter where those businesses were located, they would have to collect a sales tax on Internet purchase, then send the taxes to Nevada tax collectors.

But that can’t happen without congressional action, and the SST is grounded on Capitol Hill.

David Carle, press spokesman for Sen. Patrick Leahy, D-Vermont, who co-sponsored the Senate’s SST bill introduced by Republican Mike Enzi of Wyoming, said a backlog caused by a “Republican filibuster” is holding many bills back.

“The Senate floor is backed up miles long because of Republican filibusters on any umber of bills requiring supermajority votes,” said Carle, referring to 60 votes, rather than the 51 normally needed for a bill’s passage. “So that complicates things as far as getting anything passed this year.”

Jon Summers, Nevada Sen. Harry Reid’s communications director, said, “We’d like to see passage of this bill, but that’s not likely to happen this year.”

Carle thinks tax reform promised by both presidential candidates might move it along, but Sens. Barack Obama and John McCain have each been reported to be against an Internet sales tax.

A spokeswoman for Obama said the senator “is monitoring the work state governments are doing in cooperative working groups to simplify sales taxes and at this point does not support any new requirements without a uniform and simple system for collecting taxes on Internet sales.”

McCain’s camp did not respond to questions. In 2000, however, he criticized President Bush for not making permanent a moratorium on Internet sales taxes. His campaign Web site says he would “keep the Internet and entrepreneurs free of unnecessary regulation.”

“Republicans view this as a tax increase,” Fox said.

And, he said, it’s easy to understand why any candidate would sidestep the matter. “It’s not a mainstream issue, and ... there’s not a whole lot to be gained by saying, ‘I think we should add this tax.’ ”

Many who are lamenting Nevada’s current budget crisis say just the opposite.