Online Sales Tax Enforcement May Become Certain In 2005Online Sales Tax Enforcement May Become Certain In 2005

The proposed passage of federal legislation to enforce the collection of sales taxes on Internet sales is gaining momentum and is likely to become a major effort before Congress in 2005, as states and municipalities work to coordinate the effort to help fill their depleted treasuries.

The collection of online sales taxes, which has frustrated states for years, needs federal legislation to give the states the wherewithal to enforce the collection of the sales taxes. Most states currently require the collection of sales taxes on items bought over the Web and through catalogs, but most consumers don't know they are required to pay the taxes and most businesses don't charge for the taxes because they maintain the process is too complicated.

Senator Mike Enzi (R-Wyo.) has proposed legislation that would establish more uniform sales tax procedures throughout the nation and give individual states more power to enforce the collection of the sales taxes. Also aggressively promoting the legislation is Sen. Lamar Alexander, (R-Tenn.).

"Everything is at the critical state right now," said Jon Abolins of sales tax provider Taxware LP in an interview Thursday. "Eighteen states have enacted legislation and another 22 are working on it." Once the number of states hits a critical mass, the legislation's chances of final passage are enhanced, Abolins said.

"I think there's a better chance than even of getting the legislation this coming year," said Abolins. "There's no national election in 2005. State senators and lobbyists are all over Capital Hill pushing for the legislation."

As things stand now, sales taxes in most states " a few states have no sales taxes " are a patchwork quilt of regulations from state to state and from municipality to municipality. Much of the confusion centers on nexus " the situation in which a retailer has a store or other physical presence in a state. For instance, a retailer based in California would not have to pay sales taxes on items shipped to customers in New York if the retailer had no facilities or physical presence (nexus) in New York.

"The states are asking Congress to remove the nexus (issue)," said Abolins, who is senior vice president of operations at Taxware, which creates software that automates sales tax transactions. He noted that Congress does not want to levy any federal sales taxes, but simply wants to help states enforce their sales tax activities.

"Almost no states enforce sales tax collection," said Alolins, "It's up to the consumer to pay sales taxes, (but) most consumers don't know they should pay sales taxes voluntarily."

States have banded together to lobby for passage of the issue in the Streamlined Sales Tax Project. Another group that is lobbying to pass the federal legislation is the National Conference of State Legislations.