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Lawmakers, businesspeople and state government representatives sparred Wednesday in yet another round of heated debate in front of a Senate committee over the issue of giving states the right to collect sales taxes on transactions involving out-of-state businesses, including Internet sales. The technology industry appeared to have a clear ally in Senate Commerce Committee Chairman Sen. John McCain, R-Ariz., who was quick to shoot down the states’ historical argument in favor of collecting remote sales taxes: crippling losses in state revenue. “Personally, I have not seen evidence of the sales-tax revenue losses predicted by the states and local governments when we took up this issue a few years ago,” McCain said. He went on to express reluctance to place further burdens on struggling Internet businesses. “One needs only to turn on the news or glance at the front page of the paper to know that the Internet Economy is not bulletproof,” McCain said. “The plunge in the Nasdaq is a clear sign that we need to be mindful of the economic effects of our tax policy decisions as we move forward on this issue.” But McCain’s support is not absolute, as he did express sympathy for brick-and-mortar companies forced to compete with online companies that don’t have to charge sales tax. He said he hoped to resolve the issue before the Internet Tax Freedom Act expires in October. Testifying on behalf of states wanting to collect sales taxes from out-of-state vendors, Wyoming Gov. Jim Geringer acknowledged that a revenue crisis has not yet come to pass in the states, but predicted that it would. Furthermore, Geringer asserted, a failure to act on the issue would require states to shift the tax burden, which in his state would likely result in increased taxes on energy. Geringer also indirectly accused Congress of hypocrisy in declaring the Internet off-limits to taxation, arguing that the federal government collected excise and corporate taxes from Internet commerce companies and allowed the collection of sales tax for online purchases of airline tickets and tobacco. But illustrating a growing rift between states with and without large technology business sectors, Massachusetts Lt. Gov. Jane Swift argued strongly against the expansion of sales tax collection. She argued that her state, a hotbed of tech-related business, will lose jobs if the tax collection burden is imposed. Swift went on to argue that, far from creating a level playing field, allowing states to collect out-of-state taxes from remote sellers would give brick-and-mortar companies an unfair advantage because they don’t have to collect sales taxes for other states when out-of-state residents shop in their stores. States have tried to collect sales tax on remote sales since the 1960s, when over-the-phone catalog sales became popular. But the growth of that industry was nothing compared to the rapid growth of e-commerce, and states have been lobbying Congress for the right to tax online sales for several years. Although the issue of sales tax was not addressed in the 1998 Internet Tax Freedom Act, states have made clear they want it addressed if the moratorium on Internet access and discriminatory taxes is extended before it is set to expire in October. A 1967 Supreme Court ruling prohibited states from collecting sales taxes from businesses that don’t have a physical presence in a given state, citing the burden that would be placed on businesses forced to collect taxes for the more than 7,500 state and local jurisdictions in the U.S. The ruling did allow for Congress to enable the states to collect the taxes if and when they simplified their tax codes, however. Some 30 states are trying to do that now through the Streamlined Sales Tax Project. In addition, several lawmakers have begun extending an olive branch to the states with legislation designed to extend the moratorium and articulate the criteria states must meet before Congress will enable them to expand sales tax collection. These legislators insist, to the objection of the states, that Congress will have the last word. Related Articles from The Industry Standard: Lawmakers Get Head Start on Net Taxes House Votes to Extend Moratorium on Net Sales Taxes The Net-Net on Net Taxes Copyright � 2001 The Industry Standard

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