Net tax plan worries Utahn

WASHINGTON — Even as states lay the groundwork to collect sales tax on all Internet purchases, Rep. Chris Cannon, R-Utah, worried aloud that the effort might damage the Internet and the overall economy.

"I'm wondering if you're not killing the goose, in the process, that laid the golden egg via the Internet," Cannon told proponents of the sale tax plan last week.

His is a key objection because states eventually will have to go through Cannon and the House Judiciary Subcommittee on Commercial and Administrative Law that he chairs to win permission for the Internet sales tax collection. Cannon held hearings on the proposal a week ago, and said he plans more.

Currently, Internet retailers must collect tax only on sales made in states where they have warehouses or some other physical presence. For most Internet retailers, the tax is not collected on a majority of sales.

The absence of a sales tax draws consumers to the Internet who want to avoid the tax. Consumers technically have the responsibility to pay the sales tax to their home states, but virtually none do.

Largely under the leadership of Utah Gov. Mike Leavitt, 31 states have ratified a Streamlined Sales and Use Tax Agreement to simplify their sales tax systems as a first step toward allowing collection of Internet sales tax.

It works to adopt uniform tax code definitions of goods, and calls for having only one sales tax rate per ZIP code. That would allow retailers to quickly see what products are taxed and at what rate for each purchase nationwide. And that would make it easier to collect.

However, as Cannon noted, "Under the commerce clause of the U.S. Constitution, Congress has the sole authority to regulate commerce among the states."

So states in the growing compact need the permission of Congress before they can require each other to collect taxes due in other jurisdictions.

"We must not take our responsibility lightly," Cannon said. "We must consider this agreement carefully to ensure that its provisions would not unduly burden interstate commerce."

Favoring the move to collect Internet sales taxes were traditional retailer associations, state and local governments and some retailers who do both Internet and traditional retailing.

Opposing the taxes were Internet retailers and Colorado Gov. Bill Owens, who says the move essentially creates new taxes that would erase benefits from recent tax cuts made by Congress, as well as create other problems.