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                                                      December 29, 1997 
                                                                        
  Tech Watch
  
Groups line up in support for Internet commerce taxes
       ______________________________________________________________
     
     John Frees
     
     Rumblings on the horizon suggest that tax-free Internet commerce
     could be coming to an end.
     
     State governments, already losing as much as $3 billion annually in
     taxes on direct-mail purchases, are taking a strong look at the
     growing market for online purchases.
     
     The Federation of Tax Administrators, the National Conference of
     State Legislatures, National League of Cities and the National
     Governors' Association all want Congress to let states tax such
     purchases.
     
     But problems involved in deciding how states could collect those
     taxes could delay any foreseeable solution.
     
     Advocacy groups favoring the collection have created an electronic
     commerce project to decide how states can obtain their share of
     taxes.
     
     But even advocates have wide differences of opinion, says Harley
     Duncan, executive director of Washington D.C.-based Federation of
     Tax Administrators.
     
     "People in the project run the gamut from those who want to apply
     taxes responsibly to everyone to those who argue that electronic
     commerce deserve special consideration, while others say we ought
     to say it should be treated the same as mail order," he says.
     
     There are some similarities -- and some differences -- between mail
     order and Internet commerce, says tax attorney Harvey Dunn of law
     firm Schottenstein Zox & Dunn. If a company has some presence in
     Ohio, say a store or a trucking company, then sales tax could be
     charged. But an out-of-state mail-order company that ships a
     product via common carrier doesn't have to charge sales tax.
     
     However, buyers should pay a "use tax" on items once they receive
     them, he says. "But no one does," Dunn says.
     
     Cars bought out of state are charged a use tax because they are
     titled, which gives the state control.
     
     The difficulty comes in determining how to collect such a tax, says
     Julie Carpenter, spokeswoman for the Ohio Department of Taxation.
     Right now, there's no way for the state to police all the goods
     that are bought elsewhere but used here.
     
     "An Ohio taxpayer's obligation is to pay the tax," she says.
     "Realistically, is this going to happen? Probably not, without
     guidelines and some oversight."
     
     Online purchases are even murkier because the Net's unique nature
     allows some products such as music, software or electronic
     magazines, to be downloaded, Duncan says.
     
     While a CD purchased in a store can be taxed, how can a government
     collect on a few megabytes sent over the Internet?
     
     The electronic commerce project is looking at a billing address
     approach, Duncan says. If the commerce terminates in a state and is
     billed to someone in that state, then that state could make a
     strong case for collecting taxes on the commerce.
     
     Another issue states face is the different taxation rates among
     states. If a product made in New Hampshire is sold online to
     someone in Ohio, should Ohio collect a sales tax even though New
     Hampshire doesn't have a state sales tax? And how should sales from
     other countries be factored?
     
     Because of these and other issues, Duncan doesn't expect project
     members to have a grasp of the issue until sometime next summer.
     
     Meanwhile, Everen Securities estimates general, apparel, furniture
     and other sales nationwide are expected to hit $795 billion by
     2000.
     
     As much as $79 billion of that will be sold online. At an average
     sales tax of 5 percent, nearly $4 billion in taxes will go
     uncollected unless the states can convince the federal government
     to figure out a way to give them a share.
     
     Got a tip for Tech Watch? Reach reporter John Frees at
     columbus@amcity.com or by phone at 461-4040, ext. 143.
     
     � 1997, Business First
     
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References

   1. http://www.microsoft.com/smallbiz
   2. http://www.amcity.com/columbus/
   3. http://www.KemperInsurance.com/
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   6. http://www.amcity.com/columbus/stories/current/newscolumns.html