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Florida loses millions to Net
By BILL ADAIR
© St. Petersburg Times, published March 21, 2000
DALLAS -- As shoppers flocked to tax-free sites on the Internet last year, Florida began to feel the pain.
The state lost about $30-million in uncollected sales taxes, enough to buy three new schools or build 15 miles of highway. The lost revenue is expected to increase dramatically this year as Internet sales continue to soar.
Florida and other governments are facing the biggest political challenge of the digital revolution: how to adapt their old-style tax systems to the Internet age, when commerce knows no boundaries.
Congress was so divided about Internet taxes that it appointed a commission to make recommendations. But after spending a year studying the issue, the commission is having a hard time reaching a consensus. Commissioners approved a compromise plan addressing some of the major disagreements Monday, but it fell short of the super-majority needed to make a formal recommendation to Congress.
Commissioners spent much of the day engaging in finger-pointing and playing games to block each other's proposals.
Dean Andal, a Republican panel member from California, complained that the three Clinton administration appointees were blocking a consensus.
"It is the administration that is holding us in gridlock," Andal said.
But Utah Gov. Michael Leavitt, a Republican commissioner leading the effort so states can tax Internet sales, complained that Congress stacked the panel to be anti-tax.
"The commission was carefully structured to produce an outcome against a level playing field," Leavitt said.
Leavitt and many other governors say they don't want new taxes on the Internet. They merely want to apply existing taxes to Internet sales.
If those sales are not taxed, Leavitt said, states would have to raise other taxes to make up for the lost money. In Florida's case, that might include an income tax or higher property taxes, Leavitt said.
But Grover Norquist, a panel member who heads Americans for Tax Reform, an anti-tax group, said Leavitt was "the leading tax-the-Internet person in the whole country."
The commission is scheduled to continue its deliberations today.
The Internet has become a tax-free haven for many shoppers.
If you buy a book from a store in the Tampa Bay area, you pay a sales tax. But if you buy that same book from a Web site, you are not required to pay the tax unless the seller has a physical presence in your state.
The debate in Dallas this week is important to Florida because the state is heavily dependent on sales taxes. Florida gets 57 percent of its money from sales taxes, according to Governing magazine, compared with a national average of 31 percent.
Charging taxes on Internet sales is complicated because of the byzantine system of state and local sales taxes.
Part of the problem is geography. Taxes vary widely from state to state and county to county. For example, Pinellas County has a 7 percent rate, compared with 6.75 in Hillsborough, 6 in Pasco and Citrus and 6.5 in Hernando. To calculate the tax, a seller such as Amazon will have to determine the home county of the buyer.
Also, different states tax the same products at different rates. Some states tax food at a lower rate and some don't tax it at all. Some provide lower rates on clothes while others tax it at the same rate as other products.
A sticking point for the commission Monday was the issue of when a company is big enough in any state to justify collecting the state's sales taxes. That issue -- known as "nexus" -- is difficult to sort out because the Internet crosses so many boundaries.
A group of business leaders on the commission won 11 votes for a proposal that put restrictions on how that physical presence could be determined, but that was short of the 13 votes necessary for a super-majority.
Another sticking point Monday was a provision in the business plan that would effectively exempt books, CDs and software from sales taxes. Other commissioners complained that the proposal gave an unfair advantage to certain industries.
When Congress created the commission, the law specified that panel must have a two-thirds super-majority to make a formal recommendation to Congress. Unable to win that many votes on Monday, Virginia Gov. Jim Gilmore, the chairman, tried to put a positive spin on the votes.
"They have in fact passed a majority position," he said. "It would have been my preference as chairman to have a super-majority. But it's not in my hands."
Once the commission completes its talks today, the Internet tax issue will go back to Congress to sort out. It is likely to be an issue in the presidential race.
Texas Gov. George W. Bush -- whose state is heavily dependent on sales taxes like Florida -- has said he supports the current moratorium on new Internet taxes, but he has offered few details about how he would approach the issue. Vice President Al Gore has said he favors a level playing field for retailers regardless of how they sell their goods.
A new study from Forrester Research said states last year taxed only 20 percent of the nearly $13-million in Internet sales. Florida suffered more than most states, Forrester said, because it has a large population of on-line shoppers but few companies with a physical presence in the state.
Florida collected about $8.3-million in taxes on Internet sales but had slightly more than $30-million in uncollected taxes.
© St. Petersburg Times. All rights reserved.