- The Washington Times - Friday, December 27, 2002

SACRAMENTO, Calif. (AP) State officials across the country are beginning to eye sales taxes on online shopping as they struggle with deficits well into the billions of dollars.
In California alone, such taxes could raise at least $200 million yearly. Local and state governments across the nation could add billions of dollars to their coffers.
"We can no longer ignore an entire segment of the retail marketplace," said Pat Leary, lobbyist for the California State Association of Counties and a frequent online shopper.
Internet shopping is expected to climb to $40 billion this year, from last year's $30 billion, New York-based Jupiter Research reports. It could reach $105 billion within five years.
This year's tally includes $10 billion for computers and accessories, $4.7 billion for clothes and $2.8 billion for books, and much of that is untaxed.
Collecting sales taxes won't be easy, though.
Under a U.S. Supreme Court decision, a state cannot force a business to collect sales taxes unless it has a physical presence, or "nexus," in that state.
Without such a presence, many online retailers refuse to compute the hodgepodge of local and state sales taxes across the nation. Most customers, in turn, duck their duty to pay the sales tax themselves, and most states don't go after them.
Though Congress could authorize states to collect these taxes for other states, lawmakers never have done so and in fact have approved a moratorium through Nov. 1, 2003, on Internet-only taxes, including a streamlined sales-tax structure that would apply only to electronic commerce.
The issue is taking on new urgency in state capitals, where governors collectively sliced $13 billion from state programs for the last fiscal year and were preparing to cut billions more, said the National Governors Association.
California's Legislative Analyst's office says the state which faces a projected $35 billion budget deficit has few options if Congress doesn't change its tune.
But the state could force retailers with stores in California such as Borders and Barnes & Noble bookstores to collect taxes on Internet sales to state residents. These Web sites do collect sales tax in a few states, but not in California.
Two years ago, when the state had a huge surplus, Gov. Gray Davis vetoed a bill with such a requirement, saying it would send the wrong message to an emerging marketing medium and robust job generator.
Mr. Davis now is facing a record shortfall and Internet sales taxes are among many options on his table, said spokeswoman Hilary McLean.
Estimates vary widely on how much governments are losing.
One widely cited study by the University of Tennessee showed that states, cities and counties nationwide lost $13.3 billion in revenue last year from uncollected electronic-commerce sales taxes.
That was about 3 percent of total sales tax revenues that year, a percentage projected to increase to 6 percent by 2006
Another study, for the Utah-based Institute for State Studies, predicted annual losses up to $45 billion by 2006. By that analysis, California last year lost $1.75 billion in revenues, while Texas and New York followed with about $1 billion each.

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