The newest wrinkle in online sales tax debate: Tying it to Bush tax cuts
The Bush tax cuts should be taken into account when debating the Internet sales tax issue, Colorado Gov. Bill Owens told a Congressional committee this month. Owens claims that tax on Internet sales would negate President Bush’s tax cuts. He adds that it would also harm rural consumers, disabled consumers and online merchants. His stance puts him at odds with nearly all of his gubernatorial colleagues.
Testifying last Wednesday before the Administrative Law Subcommittee of the House of Representatives’ Judiciary Committee, Owens argued that the Simplified Sales Tax and Use Act recently submitted to Congress would “fundamentally alter the retail landscape in America and change the nature of digital commerce.” Although he is one of the few governors to oppose Internet sales tax, he was the only governor to testify before the subcommittee, a Congressional aide says. “If the advocates are correct and the Internet tax will generate $440 billion, it would negate a substantial portion of the tax relief that this Congress and the administration have provided to the American people,” Owens told the subcommittee.
“We’re skeptical of everything he said. He’s very much out of step with mainstream governors in this country,” says a spokesman for Rep. Bill Delahunt (D., MA), who introduced the Simplified Sales and Use Tax Act last month. “He’s one of very few governors who oppose Internet sales tax.” Whenever it makes statements regarding online sales tax, the National Governors Association has cited as many as 44 governors in favor of the simplified sales tax.
While the National Governors Association and other groups representing state officials support current federal legislation that would authorize states to mandate collection of Internet sales tax as a means of raising $440 billion over the next 10 years for financially starved state budgets, Gov. Owens contends that an Internet sales tax collection system would infringe on the rights of states as well as consumers and actually cause some states to lose revenue.
Owens went on to contend that the effort to simplify collection of state sales tax for Internet commerce would wipe out existing tax exemptions already enacted by many states. “Even worse, states that cap the amount of sales tax that is paid on an item could see that cap erased as well,” he said. He added that states that choose not to reimburse online merchants for the cost of tax collection–-as provided for under proposed legislation–-could be overruled by new federal law.
In addition, Owens said an Internet tax would particularly hurt consumers who are rural or disabled because it would force them to pay extra for what is often the only shopping option available to them. He added that an Internet sales tax system would require extensive auditing of transactions, infringing on the privacy of consumers by examining what was purchased and for what price, the amount of tax paid and the consumer’s residence.
Owens also cited in his testimony studies that purport to show that consumers will reduce their online spending by as much as 25% if sales tax is imposed, although his office was unable to provide further details of those studies. Just the opposite came from a study in November 2002 by Jupiter Research, “Sales Tax: Avoidance is Imperative to Few Online Retailers and Ultimately Futile for All.” That study found only 46% of online consumers were even aware they could avoid sales tax by shopping online, and of that 46%, more than half said they didn’t search for online retailers that don’t collect sales tax.
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