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New push for Internet sales tax ominous for consumers.

Online commerce is threatened again by the specter of a scheme to tax Internet sales. This fall has seen outgoing California Governor Gray Davis sign a bill joining California into the compact of states building the Streamlined Sales Tax Project (SSTP). And bills to give Congressional approval to the compact have been introduced in both the U.S. House and Senate.

The SSTP is a project now consisting of 39 states that are working to harmonize sales tax rules and recording taxing the transaction. About 20 states have already passed the laws to "simplify" their sales tax systems in expectation that Congress will ratify the compact.

Such a large compact could undermine tax competition between states, which would mean higher prices for consumers. Traditionally, when sales taxes are too high, consumers have had the option, though inconvenient, of shoping in another state. This compact will undermine that check on the tax-hungry state governments--meaning consumers will pay more at the register.

As it now stands, a state government cannot force businesses not located or lacking a "nexus" in that state to collect sales taxes. Individual consumers are instead liable in many states to report such purchases and pay a roughly equivalent "use tax." But use taxes are difficult and unpopular to enforce, which enables states to use lower sales tax rates to compete for businesses and consumers--something that does not sit well with the governors and legislators of high-sales-tax states.

The bill also proposed taxing catalog and phone-order purchases as well. Due to the current budget problems in many states, politicians might be eager to set up and mandate an elaborate "streamlined" system that would track consumer purchases across the country--online and offline--and enable the consumer's home state to automatically collect a tax at the time of sale. This tracking system would necessarily undermine consumer privacy by adding their purchase information to yet another database.

With state governments screaming for more revenue and engaging in cavalier online security practices regarding everything from Social Security numbers, to driver's-license photos to insecure voting software, approval of this compact would spell bad news for both consumers' pocketbooks and their privacy.
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Publication:Consumer Comments
Date:Dec 22, 2003
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