When the final meeting of a federal commission on Internet sales taxes stumbled to an acrimonious close last week, its work was widely described as a failure. But in the days since the Advisory Commission on Electronic Commerce disbanded, apparently unable to make a formal recommendation to Congress, a new assessment has been developing. Now observers say the panel may have succeeded in killing Congress's option to declare the Internet free of sales taxes forever. But when you really look at what that would do to state tax revenues, you start to realize the losses could be staggering.
Sales taxes account for about a third of all state revenues.
The commission's debates revealed that the need to collect sales taxes for schools, roads, police and other basic services is too compelling to grant Internet-based businesses a permanent break from tax collection duties, Prem said. So now as the debate moves to Congress, the arguments will likely focus on how to move the nation toward a tax system in which all merchants will have to collect and remit state sales taxes, whether they operate out of storefronts, through the Internet, by telephone or by mail. But it's far from clear how long that transition will last, or how Congress and the states will shape the new rules. In fact, it's not even clear which committees in Congress will spearhead the debates. The Senate Finance Committee last week announced it soon will hold hearings on Internet sales taxes, but the Senate Commerce Committee also plans to get involved.