'Silicon Beach,' land of income tax?

By SARA FRITZ

© St. Petersburg Times, published June 19, 2000

WASHINGTON -- "We want Florida to be the "Silicon Beach' of tomorrow," Tom Feeney, likely the next Florida House speaker, declared during a visit to the nation's capital.

In other words, Florida, like virtually every other state in the union, wants to be a friendly atmosphere for high-tech business.

Feeney made his statement during a discussion with members of the Florida congressional delegation about taxing retail sales made on the Internet. Because Florida wants to be "Silicon Beach," he added, the state does not want to be seen as moving aggressively to collect taxes on Internet sales.

That begs the question: Is the Florida Legislature prepared to forgo an estimated $1-billion in uncollected sales taxes over the next few years in order to win a popularity contest with dot-com business executives? Of course not.

In essence, Feeney and the other Florida legislators who came here last week were telling members of Congress that they want it both ways: They want the revenue derived from taxing retail sales on the Internet, but they do not want Florida to have a reputation for imposing it.

Sorry, folks. You cannot have it both ways.

Florida, as everyone knows, is one of those states that prides itself for not having a state income tax. Instead, it depends upon the sales tax to generate more than 70 percent of its revenues. Therefore, if Internet sales continue to grow and Florida makes no effort to collect taxes on those sales, the state's revenue base is naturally going to shrink.

So how do the Florida legislators propose to solve this dilemma? This is the shocking part: They want Congress to do it for them.

These are, I dare say, the very same state legislators who would argue that the best government is the one closest to the people. But when it comes to imposing taxes on a trendy new industry, their attitude seems to be, let Washington do it.

Chances are, however, that Washington is not going to do it, at least not in the foreseeable future. Although Sen. Bob Graham, D-Fla., is co-sponsoring a bill to be introduced shortly that would make it easier for states to tax Internet sales, it is not expected to pass this year -- if ever. Many conservatives in Congress are staunchly opposed to taxation of Internet sales.

The National Conference of State Legislatures, meanwhile, is developing model legislation for state legislatures that would create a nationally accepted uniform state sales tax, thus making it easier for all states to tax Internet sales.

In addition, NCSL is aiding in the development of software that would make it easier for states to collect these taxes.

The NCSL's effort is an attempt to exert states' rights. Those involved in this project believe that the states, not Congress, should be shaping state tax legislation.

They do not want to leave the task to Graham and his co-sponsors because they fear that any legislation passed by Congress will impose some limits that would inhibit their ability to raise revenue. For example, they fear that Congress, which always has a soft heart for small business, would limit the right of states to tax sales of enterprises with revenues of $5-million or less. This would be a big, new tax exemption for small business.

"We don't believe that Congress should be mandating what state taxes should look like," said Neal Osten, the NCSL's director of commerce and communications.

While some representatives of Florida's state government are participating in the NCSL's meetings on the subject, Florida has not endorsed the idea of joining with other states to develop a national uniform state sales tax. Instead, the Florida Legislature has created a task force to study the matter. The task force's final report is not due until February 2002.

How would high-tech businesses react if Florida tried to collect taxes on Internet sales? The irony is that most companies involved in retail sales on the Internet don't seem to care whether their customers have to pay sales tax. Aides to Graham say that lobbyists for these companies, such as Dell, the Texas-based computer company that sells on the Web, have not come to Washington asking to be exempt from state sales taxes.

Opponents of the imposition of state sales taxes on Internet sales are, instead, the companies that provide access services to the Internet, such as America Online. These firms are benefiting from a sales tax moratorium on their products, which Congress is likely to extend for another year or two.

Sometimes lost in this discussion is the fact that people who live in Florida are required by law to pay sales taxes on their Internet purchases. But because the state is doing little or nothing to collect those taxes, many Florida residents mistakenly believe these purchases are tax-free.

If the government of Florida does not want to collect these taxes, of course, there is an obvious alternative. The problem of collecting Internet sales tax would be eliminated entirely if Florida financed its government with a state income tax, instead of a sales tax.

Oops. Did I mention the unthinkable? A state income tax?

Yes, it seems obvious to me that the longer Florida's leaders delay action on collecting tax on the Internet sales, the more likely it is that they will someday be forced to consider the unthinkable. Could that be the necessary trade-off for creating "Silicon Beach"?

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