Business group addresses online nexus.

A customer in Illinois orders a computer game from a company in Maine through the company's Web site by e-mailing a credit card number. The company sends the game program over the Internet. The Internet service provider (ISP) has a "presence" in Illinois consisting of a small room with a computer but no permanent personnel. Which state gets to collect tax? The company doesn't even know where the customer lives. The issue is "nexus," and it's causing confusion for customers, businesses and Internet service providers, as each state approaches the problem differently.

The Interactive Services Association (ISA) is attempting to address the problem and establish consistency, at least from the point of view of companies doing business over the Internet. Founded in 1981, it's an organization representing about 350 companies involved in delivering interactive services, including many major online and Internet companies. A task force of member companies recently published a white paper exploring taxation of goods and services and technological problems and solutions. "While nobody likes additional taxes, if states are going to impose taxes on online and Internet services, we want to make sure they take time to understand the nature of the Internet and the problems associated with taxing it," Sara Fitzgerald, ISA's director of member services, told the Journal. "We believe that if states impose transaction taxes, they should be attributed to the billing address." The white paper concludes that states should

* Adopt uniform definitions among themselves.

* Establish a single rate, within each state, of any applicable tax.

* Recognize the fact that the only type of tax that can be applied effectively to purchases made over the Internet or proprietary subscriber networks will be a tax on the purchaser with respect to the purchase transaction itself.

* Attribute, to the extent possible, receipts from the sale of Internet and online services to the state into which the sales are billed.

* Rethink nexus standards insofar as they apply to the Internet and Internet-based transactions.

The ISA task force that drafted the white paper included representatives from companies with large financial stakes in the resolution of the tax problem, such as America Online, CompuServe, IBM and Microsoft.

AICPA, MTC also concerned

"The committee is looking at this issue," Carol M. Calkins, Price Waterhouse tax partner and member of the American Institute of CPAs state and local taxation committee told the Journal. "This is cutting-edge taxation. States may be exceeding the scope of their statutes in creating Internet-related taxes, but they have the right and obligation to protect their revenue sources." She indicated that the Multistate Tax Commission (MTC), which has been working on draft guidelines for some months, might provide solutions. The current draft is fairly narrow in scope, and the MTC admitted that some issues will have to be deferred to a later time. Calkins expected the committee would respond to any final statements from the MTC or other regulatory body.

The ISA white paper is available at http://www.isa.net.