The nation's governors, led by Utah Gov. Mike Leavitt, have found a way to tax Internet sales without forcing Americans off their home computers or creating new reams of bureaucratic red tape.
That's good news, and it comes in sharp contrast to President Clinton's approach, which is to hold a national dialogue - presumably to begin some time after his dialogue on race winds down. The nation's merchants and local governments can't wait that long.Many Americans have difficulty understanding why the Internet poses such a threat to local businesses. They wonder this even as they peruse virtual malls and buy books from Amazon.com - all tax-free. Local malls and bookstores, meanwhile, can't compete with Internet prices because they have to charge sales tax.
According to Financial Times, Internet retailers did more than $1 billion worth of business during the last Christmas season alone. By some estimates, total yearly online sales will grow to $327 billion by 2002. Amazingly, Amazon.com is close to becoming the nation's third largest book seller, and mail-order businesses aren't far behind.
Not only do local stores suffer because of this, local governments also go without a hefty share of sales tax revenue. The average state relies on sales taxes for 30 percent of its income. If the trend continues, everyone will begin to notice when roads crumble and other essential services deteriorate.
But solutions aren't easy. Every town, county and state has its own sales tax rate. By some estimates, there are 30,000 separate taxing authorities nationwide.
The governors have written something known as the Internet Development Act of 1998. It would encourage each state to pass a single, uniform sales tax rate that would apply to Internet and mail-order sales only. That would give online merchants a more manageable 50 rates to worry about.
States may have trouble collecting the taxes, although the version of the act passed by the National Governor's Association mentions the possibility of setting up independent third-party organizations for this purpose. Merchants would be given software that automatically figures the taxes and sends them to the appropriate place.
This may be the only credible solution to the problem. It would provide money to local governments and force Internet businesses to compete fairly while not forcing them out of business. It wouldn't help local businesses who live in jurisdictions where the local tax rate may be higher than the state's Internet rate, nor would it keep people from buying through off-shore Internet and mail-order sites. But, realistically, this is a problem that defies a perfect solution.
The governors, however, have taken a giant first step toward dealing with the fast-moving world of Internet and mail-order sales, and that makes a lot more sense than merely talking the issue to death in a series of well-orchestrated townhall meetings, as the president is wont to do.