Internet sales tax progresses

BOISE – Idaho took another step Thursday toward joining a nationwide push to force Internet and catalog businesses to collect sales taxes when they sell items to customers in other states.

A divided House Revenue and Tax Committee voted 9-8 to deepen the state’s involvement in the so-called Streamlined Sales Tax Project.

Lobbyists for giant retailers and chambers of commerce told the committee all sales should be taxed the same, whether they’re over the Internet or at a physical store.

“This puts everyone on the same level,” said Pam Eaton, a lobbyist for the Idaho Retailers Association, whose members include Wal-Mart Stores Inc., Target Stores and Walgreen Co. “It’s a fairness issue.”

Losers in Thursday’s vote were lawmakers who fear the push will sacrifice Idaho’s tax sovereignty.

States began studying how to capture tax revenues they’re losing to Internet and catalog sales several years ago, after the U.S. Supreme Court ruled it’s unconstitutional for a state to impose a tax on a business not physically in its jurisdiction. Forty-four states charge a sales tax, but they do it in vastly different ways, and it would be onerous for businesses to try to negotiate each state’s system, the court ruled.

Now, many of those states are joining forces on a simplified set of sales-tax rules, in hopes of meeting Supreme Court muster – and of eventually convincing Congress to allow states to capture more taxes from Internet commerce.

“My ‘Main Street’ retailers have been after this for a long time,” said House Minority Leader Wendy Jaquet, of Ketchum, one of five Democrats who joined four Republicans in favor.

Although people in Idaho and elsewhere who buy from out-of-state Internet and catalog companies legally must pay taxes on their purchases, they rarely do. Such laws are rarely enforced.

A University of Tennessee study estimates states lost some $24 billion in online sales taxes in 2006. Idaho’s share exceeded $50 million, the study said.

So far, 18 states, including neighboring Wyoming, have signed agreements to simplify their tax systems. Washington, Utah and now Idaho – among other states – are working toward agreements.

If the measure clears the House and Senate and is signed by Gov. Butch Otter, the Legislature still would have to approve any changes needed in the state’s tax code to conform with the simplified taxing regimen, said Dan John, tax policy manager for the state Tax Commission. That wouldn’t be before next year, at the earliest.

Agreement was far from universal.

Russ DeLuca, an owner of the Boise-based Internet company bodybuilding.com – which makes nearly all its $66 million in annual sales outside of Idaho – urged lawmakers to delay joining an effort that could force him to collect taxes from buyers in other states and then send the money to those taxing authorities.

“You would be putting a burden on us,” DeLuca said. “We should be the very last (state) to join.”

Among those who tried to kill the plan was Rep. Phil Hart, R-Athol, who once refused to pay his personal income taxes for seven years while unsuccessfully challenging the federal government. “This is unconstitutional,” Hart said. “The ability to buy products without a sales tax is an oasis of freedom.”

With a single vote separating the bill from failure, the health problems of one panel member – Rep. Jim Clark, R-Hayden – turned out to be decisive. Clark suffered a minor stroke last Friday and won’t return before Monday, at the earliest. Had he been there, Clark said, he’d have voted the measure down; a tie would have killed it.

“I hate it,” Clark said. “I think we can take it down on the (House) floor.”