Net Tax Could Help, a Little (Editorial)

A majority of states, including Arkansas, are in the process of coming up with a national plan for taxing items sold over the Internet.

Currently, 45 states have sales taxes, but rates vary widely from state to state — and from town to town. Under the current way of doing business, it’s next to impossible to come up with a way of taxing online sales that’s fair to everyone.

What’s at stake? The General Accounting Office estimates states lose some $13 billion a year on untaxed Internet sales — a figure that could reach $45 billion by 2006. Lawmakers and tax officials from 30 states are backing a proposal to simplify their tax laws and enter into a voluntary pact to collect online sales taxes. Then they hope enough states sign on to the plan to get a reluctant GOP Congress to pass mandatory legislation dealing with Internet taxation, although that will not be an easy job.

Under the Streamlined Sales Tax Project proposal, states would have to set up uniform definitions for taxable goods and services and keep a single statewide tax rate for each type of product. The project also seeks to simplify tax reporting requirements for online sellers. Currently, there are more than 7,000 separate state and local tax jurisdictions nationwide.

The nation’s largest “brick-and-mortar” retailers have argued for years that the current system gives online vendors an unfair edge. Internet businesses, with a physical presence in just a handful of states while selling to customers nationwide, are likely to balk at the costs of collecting and distributing sales taxes.

In the past we’ve been reluctant to endorse any Internet taxation plans because the still-young industry needed to grow before being burdened with the high cost of such a task as filing as many as 45 separate tax returns each year.

We would have to deal with enforcement questions and consumer privacy issues. Someone has to keep track of what’s bought and who bought it in order to tax it.

Still, Internet sales have grown each year. It’s probably safe now to start taxing their sales. Most states need the extra money to fix all of their budget problems.

A couple of years ago, Arkansas’ Department of Finance and Administration estimated its annual revenue loss from Internet sales at $1.7 million, adding that it expected that figure to grow 40 percent a year. Over a 10-year period, the loss could exceed $49 million.

That isn’t enough to fix what ails the Arkansas state budget, but in tight times, every bit helps.