Untaxed Net sales in cross hairs

WASHINGTON — Congress is debating new taxes on Internet shopping and access amid concern about keeping state finances healthy in the long run.

In May, Sen. Michael Enzi, R-Wyo., introduced a bill that would require retailers in every state to collect sales tax on Internet purchases.

"Simply put, if Congress continues to allow remote sales taxes to go uncollected and electronic commerce continues to grow as predicted, other taxes, such as income or property taxes, will have to be increased to offset the lost revenue to state and local governments," said Enzi.

The only customers required to pay under Enzi's bill, however, would be those whose home states comply with the Streamlined Sales and Use Tax Agreement.

So far, 15 states, including North Carolina, comply with that agreement to simplify and coordinate their sales tax rules and collection methods. Another six, including Ohio, are expected to be in compliance by Jan. 1.

The drive to get all 45 states with sales taxes to join the agreement began after the Supreme Court, citing the nationwide tangle of tax rules, said in 1992 that online retailers were not required to collect sales taxes on behalf of the states or cities where their customers live unless the retailer operated in that state.

Consumers are still legally bound to pay sales taxes on Internet purchases when they file their state taxes, but few do, and the law is rarely enforced.

Only if Congress mandates retailers to collect taxes from remote sales will states recover significant revenue losses, said David Quam, director of federal relations of the National Governors Association.

"The Internet is the next generation of catalog sales," Quam said. He said Enzi's bill makes "the local mom and pop bookstore subject to the same sales taxes as the bookstore on the Net. It creates a level playing ground for businesses."

The National Governors Association and the National Association of State Budget Officers reported this month that while state revenues and spending are stronger this year than anticipated, many states anticipate future weakness in those areas because of slowing economic growth.

E-commerce sales reached $31.5 billion in the first quarter of 2007, according to the Department of Commerce, up about 18 percent from a year earlier. Internet sales accounted for about 3 percent of total sales.

A 2004 University of Tennessee study estimated that by 2008, state and local governments would lose $21.5 billion in sales tax revenue because of e-commerce.

Tax opponents call that number wildly inflated.