New 5 percent Web sales tax proposed
By Margaret Kane, ZDNN - July 30, 1999 12:30 PM PT
A South
Carolina senator has proposed a bill that would levy a 5 percent federal sales tax on all
goods sold over the Internet or through catalogs. Sen. Hollings' controversial
proposal would tax every sale over the Internet, to benefit local communities.
The bill, introduced earlier this week by Sen. Fritz Hollings (D-S.C.), flies in
the face of the Internet Tax Freedom Act passed last year. That bill put a three-year
moratorium on new Internet taxes and created a commission to study the issue.
But a spokesman for Hollings said today that the senator "knows we have a
problem and it takes less than three years to solve that problem."
The "Sales Tax Safety Net and Teacher Funding Act" would use the taxes
raised to create a trust fund and remit the money collected to the states in the form of
grants for elementary and secondary-school teacher salaries.
Money belongs in local communities...
"Because of direct-mail purchases and Internet purchases we have literally
hundreds of billions of dollars moving through the system without the sales taxes being
collected by state and local level," the senator's spokesman said. "Theses are
sales taxes voted in by the communities and used mainly to fund education. This gives the
opportunity to allow communities who have been hurt to collect the tax."
Earlier court rulings had prevented states from requiring out-of-state
mail-order companies to collect local sales taxes. The same rules generally apply to
Internet firms.
But while catalog companies had been doing business for years without collecting
the taxes, the huge jump in Internet sales -- Jupiter Communications estimates the 1998
sales figure at $7.1 billion and expects that to jump to $12 billion this year -- sparked
local and state governments into action. Meanwhile, industry advocates maintained that any
new taxes would stifle a growing industry. Congress agreed to postpone any quick decisions
with the bill passed last year.
Critics said today that Hollings' bill would destroy that effort.
"We need to allow the work to be done to figure out how taxes are best
(applied on) the Internet," said Dennis Hayes, chairman of the Association of Online
Professionals. "The whole reason for the moratorium was to allow the time to do
that."
Tom Van Horn, president of online retailer Mercata Inc., suggested the Web's
potential as a major driver of commerce would make it a target for taxes.
"Even though the Internet is only about half a percent of overall retail
sales, it's perhaps the growth potential that’s sparking this kind of need for the
tax thing," Van Horn said.
The bill has been referred to the Senate Finance Committee.
