Copyright 1999 The Baltimore Sun Company
THE
BALTIMORE SUN
February 7, 1999, Sunday ,FINAL
SECTION: BUSINESS ,1D The Economy
LENGTH: 751 words
HEADLINE:
Untaxed Internet sales are costing Md. dearly; Few buyers pay levy; stores lose
business
BODY:
MARYLAND will lose
$20 million in sales taxes this year that
should have been collected on Internet retailing, if you
believe analysts' projections.
That's enough to fix more than a few
leaky school roofs. It's almost enough -- not quite, though -- to bribe Marriott
International into staying in Maryland instead of booking reservations on the
other side of the Potomac.
Internet commerce is quickly becoming
material not just to state treasuries but to hapless "analog" stores that still
do business -- can you imagine? -- in buildings.
Virtual retailers have
shucked off dozens of costs that enchain their brick-and-steel enemies: Store
rent. Fire insurance. Parking lots. Cash registers.
As the recent
Christmas season showed, the advantages are starting to tell. Forrester Research
of Cambridge, Mass., projects online U.S. retail sales of $18
billion this year and more than $100 billion by 2003.
Much of the e-trade is being pirated from malls and Main Street. And why
not? Besides cutting their operating costs to half of what real stores pay,
Internet vendors help consumers violate tax law and not get prosecuted.
Drive over to Borders to pick up, say, "Mechanical Animals," the latest
in the Marilyn Manson canon. The CD costs $17.99, plus
Maryland's 5 percent sales tax of 90 cents. Total: $18.89.
If you link to Amazon.com, however, it's only $14.99,
plus $2.95 shipping. Total: $17.94.
No
sales tax.
No sales tax collected by Amazon, that is. You're supposed to
pay it anyway, listing the CD on Maryland tax form ST- 118 and sending it with
your check to Comptroller William Donald Schaefer. You are familiar with Form
ST-118, aren't you? You do file it quarterly, listing not only Internet
purchases but also goods from L. L. Bean, J. Peterman and other mail-order
vendors. Right?
OK, maybe not.
"Taxpayers tend to be less
familiar with the tax on out-of-state purchases than with the tax on local
sales," says literature from the Comptroller's Office. That's a delicate way of
saying: "Marylanders have never heard of Form ST-118 and wouldn't fill it out
even if you told them about it and gave them a pen to do it."
All 45
states that tax retail sales also tax out-of-state purchases made by resident
consumers. No state, however, works too hard to collect the money.
Bureaucrats sometimes fret about lost catalog-sale tax revenue,
estimated to be about $4 billion a year nationwide. But never
loudly or to much effect. Politicians aren't crazy about policing small consumer
purchases, and states do get some mail-order sales tax. (If a catalog retailer
has a store, headquarters or other physical presence in a state, it must
tax mail-order sales in that state and send a
check to the authorities.)
The Internet Age, however,
is going to change all this.
"Most of the numbers you see out there
suggest that somewhere by the year 2002, Internet sales will be
as large as catalog sales," said Harley Duncan, executive
director of the Federation of Tax Administrators in Washington.
"I don't think it's unreasonable to suggest that in the next five to seven
years, you could be looking at a number as large as $10 billion
in foregone sales tax revenue on an annual basis.
"That, I think, gets
our attention."
It should also get the attention of traditional stores
and the people who do business with them. By selectively enforcing the law,
states are discriminating against local retailers, who have enough battles to
fight.
And laws taxing Internet sales do, in fact,
exist. Last year, Congress passed the Internet Tax Freedom Act,
which was widely and amazingly misreported as a "moratorium" on taxing all
Internet commerce.
It's actually a ban on new taxes aimed at the
Internet exclusively. Mail-order taxes are still in force, Web transactions
included.
Besides the $20 million Maryland stands to
lose on lost Internet-sales tax this year, the research cited
by Duncan suggests that the state also will let more than $50
million in catalog- sales tax go uncollected.
To plug the leaky till,
retailers and policy- makers are talking about cleaning up states' tax codes and
requiring all merchants to administer a simplified sales tax in each
jurisdiction. Alternatively, there's talk of applying one federal sales tax that
would get dished off to the states.
For years, some conservatives have
talked about setting up a national consumption tax. This may be their chance to
get it.
LOAD-DATE: February 12, 1999
