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Location: Nashville, Tennessee, United States

4/28/2003

Online Sales Taxes? Argghh!
The half-truths, misstatements and falsities in this report written by Karin Miller, the Associated Press reporter in Tennessee, and carried in today's Tennessean, are numerous. Below, excerpts from the story in italics, followed by my comments.

Tennesseans who shop on the Internet should pay sales tax when they purchase an item, but most don't.

Actually, Tennesseans who shop at many online retailers do indeed pay sales taxes because those websites are operated by a major offline retailer.

The state doesn't enforce the law and the federal government doesn't require online retailers to collect the tax.

The state's sales tax doesn't apply the purchases made from out of state vendors online any more than Tennessee applies its sales taxes to a candy bar or a sweater you buy in Kentucky. The state has a "use" tax on the books for items you buy out of state and bring into Tennessee, identical to the sales tax, but Tennessee never set up an enforcement and collection mechanism, making the tax de facto voluntary. How voluntary? The form state government provides for reporting your purchases and filing your "use" taxes describes itself as a way for Tennesseans to "voluntarily" report their tax liability. The state has no pro-active general collection mechanism for the use tax and the state does not fairly and equitably enforce the - nor make any attempt to fairly and equitably enforce - the tax. It is a voluntary tax and will remain such until the legislature deems it necessary to create a collection mechanism.

In 2001, state and local governments lost about $362 million in Internet sales taxes, according to a University of Tennessee study, and researchers project the losses to grow to $1.2 billion within three years.

That study has long ago been discredited time and time again, but the AP didn't bother to mention a more recent research study into online sales taxes which found states are losing much less than the UT study estimated - perhaps because Miller, the AP reporter, was successfully "spun" by Tennessee officials and legislators who want to make the revenue "loss" appear to be very very bad. The UT study was based on projections for the growth of e-commerce made during the dot-com boom, but online sales have not grown that fast. Also, an increasingly portion of online sales are being made by the online units of offline retailers, and those companies increasingly are charging sales taxes.

Nationally, the study found that governments lost $13.3 billion in ''e-taxes,'' with losses estimated at $45 billion by 2006.

See above.

A multistate effort, known as the streamlined sales tax project, seeks to create a national standard for collecting taxes owed on Internet and mail-order sales. Thirty-seven of the 45 states that impose a sales tax are seeking to participate, including Tennessee.

Miller doesn't bother to mention until much much later in the story that participation would be voluntary, because of two Supreme Court rulings that currently bar such taxes. She also never mentions the Commerce Clause of the U.S. Constitution, which bars states from taxing economic activity outside their borders. (Incidentally, the state's "use" tax is supposedly applied to the purchase price of merchandise you buy out-of-state plus any shipping and handling charges that the merchant adds to your bill, which clearly appears to be a violation of the Commerce Clause because it applies the tax to economic activity - shipping and handling - that clearly occurs in another state. But that's an issue for another day.)

"We're trying to level the playing field between brick-and-mortar businesses in this state and those on the 'Net, and to ask people to pay taxes they already owe," said Sen. Bill Clabough, R-Maryville, who is helping lead Tennessee's effort.

Clabough. Argghh! The Republican is a consistent squish on taxes - he was a supporter of the proposed but unconstitutional state income tax (Tennessee Politics, 4/26/99) and here again proves he is both for higher taxes and doesn't know what he's talking about. The tax is not owed right now. Repeat: you do not owe one dime of sales tax to Tennessee on things you buy over the Internet from sellers who don't have a physical presence in Tennessee. That, according to the 1992 Quill ruling from the U.S. Supreme Court, upholding your constitutional protection against states levying their taxes outside their borders.

Because of that complexity, the U.S. Supreme Court ruled in 1967 that businesses don't have to collect taxes for states unless they have a physical presence in the state.

The court's primary reason wasn't "complexity." The primary reason was the Commerce Clause.

At the time of that decision, most ''remote'' sales were catalog orders. The landscape was similar when the nation's high court upheld the ruling in a second case a decade ago. However, Internet sales have changed all that.

How? The Internet is merely an electronic catalog and ordering system.

Retailers won't start collecting the taxes until at least 10 of the 45 states streamline their systems. The states must represent 20% of the 45 states' population, or about 55 million people. The system would be voluntary for retailers and states - unless Congress is persuaded to impose the standard code nationally. Clabough said U.S. House Speaker Dennis Hastert had promised to move such legislation quickly, and he plans to ask Senate Republican Leader Bill Frist of Tennessee for a similar vow.

Frist, who wants to be President, should tell Hastert where to stick it.

Clabough will meet today with House Finance Committee Chairman Tommy Head, Comptroller John Morgan and Revenue Commissioner Loren Chumley in hopes of reaching a compromise that will allow him to move forward with legislation.

You mean the governor isn't pushing this? Clabough - the governor, a Democrat, doesn't want to raise taxes! Why are you, a Republican, seeking to raise taxes? Don't you see how beloved is the last Republican who tried that in Tennessee? We're talking about ex-Gov. Don Sundquist, who is routinely booed even in absentia and who, if he'd been able to run for a third term, would have been overwhelmingly rejected by voters. Stop being a squish on taxes, Clabough. Stand up for the people instead of the every-growing government for a change.