Negotiations stall on Net sales tax bill

Business groups object to the absence of specific tax requirements on a Senate bill to allow state and local governments to collect sales taxes on e-commerce.

WASHINGTON -- The high-technology industry and several business groups have dug in their heels in talks over legislation that would clear the way for state and local governments to collect sales taxes on e-commerce.

Negotiations among a bipartisan group of senators stalled this week after business groups loudly objected to the absence of specific requirements that all states simplify their often Byzantine tax rules, congressional aides and lobbyists said.

"There has to be genuine, significant simplification. If the deal is as it is reported to be, we're very concerned," said Frank Julian, vice president of Federated Department Stores Inc. and chairman of the Direct Marketing Association's sales-tax group.

If there is no deal, the status quo will remain with regard to sales taxes, but a federal moratorium on Internet-access taxes will expire in October. That would free states to possibly impose new access taxes to compensate for lost sales-tax revenue.

'Simplification criteria'
Following reports that a long-sought compromise over the issue was near, the high-tech industry's Internet Tax Fairness Committee issued a statement demanding specific simplification requirements. "We think that a list of simplification criteria is absolutely essential," said Mark Nebergall, the group's chairman.

In the bill's current draft form, Congress would vote to allow interstate sales taxes if at least 25 states approve a tax-simplification plan developed by the National Governors Association.

The plan doesn't set specific tax levels for types of goods, but rather seeks to simplify the thousands of sales and uses taxes through standardized definitions of goods.

Sen. Ron Wyden (D., Ore.) has declined to sign off on the draft plan unless it includes the provision for the tax-simplification plan, while Sen. John McCain (R., Ariz.) a key player in the talks, pointedly issued a statement saying, "I have not signed on to any proposed legislation on Internet taxes."

The fight is the latest round in a see-saw legislative battle between the high-tech industry and state and local governments. The governments don't want to give up taxing rights, while the high-tech and mail-order industries don't want to subject themselves to more taxes unless the states make big concessions on simplification.

State and local governments now lack the power to collect sales taxes on much interstate commerce conducted online or by phone. That followed a 1992 Supreme Court decision that found such levies--which vary wildly across about 7,500 jurisdictions--to be an unreasonable burden on interstate commerce.

Under the deal being negotiated, businesses would surrender their partial immunity from taxation in exchange for tax-code simplification, including possibly a requirement that states enact a single statewide rate for e-commerce, as well as a renewed moratorium on state Internet-access taxes.

Simplification requirements were in the proposed bill last week, but were dropped after states objected. Now that the technology industry has lodged an equally strong complaint, lawmakers may be back where they started on the issue.

Lisa Cowell, a lobbyist for conventional "brick and mortar" retailers and other interests seeking equal taxation for online and in-person sales, was still upbeat. "We continue to be optimistic this is going to be resolved within the next few days," she said.