Congress Debates Internet Sales Tax

One of the current assignments of Congress is to consider extending the five-year Internet sales tax moratorium, which is set to expire this October. The Senate Commerce Committee is to meet later this week to consider legislation in this area. This moratorium affects Internet access fees and isolated taxes. It is assumed that the moratorium will be extended

Meanwhile, Congress continues to grapple with the issue of sales tax on Internet purchases, a quagmire largely due to the fact in order for an Internet sales tax to work, all states will probably have to reach some agreement on a fair and equitable sales tax that can be applied to all Internet sales.

Right now, each state that collects sales tax has a rate and set of rules unique to the state. Trying to apply each state's rules to Internet sales would become a bookkeeping nightmare for any retailer making a sale on the Web. If all the states can agree to a single rate, a flat rate of tax can be charged on an Internet sale, and the system of remitting taxes to individual states can be automated.

"This is a complicated and controversial issue," said Senator Byron Dorgan, D-ND. It's a tax that is already owed. The question is how you work it out so the consumer can more easily pay it."

There are already laws on the books in 45 states that provide for the collection of tax on out-of-state sales, and these laws cover Internet sales. The problem is that the system of payment is a voluntary system, usually reflected as a single line item on state income tax returns ("Did you make any out-of-state purchases on which you did not pay sales tax?"), and individual taxpayers are expected to calculate and pay this tax when they pay their income tax. Some states have laws wherein residents are expected to fill out a form and mail the form to the state with the tax due on an out-of-state purchase each time such a purchase is made. These laws are sometimes quite archaic and most states do not try to enforce them.

Congress is hoping that the states will get together and work out a unified method for charging and collecting the tax on Internet sales.

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