Senators Nearing Net Tax Compromise

A deal being negotiated by Senate Democrats and Republicans would consider granting state and local governments more power to tax e-commerce if at least 25 states simplify their sales-tax codes.

According to news reports yesterday, the proposal is being drafted by Sens. John McCain, R-AZ; Ron Wyden, D-OR; and John Kerry, D-MA, among others. No deal has been agreed to yet, but supporters are hopeful that the package will be formally introduced, possibly later this week.

Under the proposal, once 25 states vote on and approve the simplification program, Congress would vote on a bill to grant the states new taxing authority, and the measure would not be subject to amendment. Three states already have adopted simplified systems, and more than a dozen are considering simplified systems.

The senators apparently dropped a requirement last week that states adopt a single statewide sales-tax rate, The Wall Street Journal reported yesterday. The hi-tech industry had demanded the single rate, complaining that the 7,600 local tax jurisdictions make collecting sales taxes an unreasonable burden.

Under the Supreme Court's Quill decision in 1992, states cannot require retailers to collect sales taxes unless they have a physical presence in that state. Since then, state and local governments have lobbied Congress to restore their lost taxing authority.

The Direct Marketing Association yesterday expressed “deep disappointment” with the reported agreement.

“Congress, in effect, would abdicate its constitutional responsibilities to regulate interstate commerce by allowing state and local governments to determine how interstate commerce will be taxed,” the DMA said in a statement. “The proposal fails to solve the ongoing need for significant simplification of the nation's 7,600 varying tax codes.”

If a deal is struck, the proposal is expected to receive a quick hearing from the Senate Commerce Committee, the Journal reported, but it also must be considered by the Senate Finance Committee and relevant House panels.

News of a compromise followed last week's front-page story in USA Today reporting that a compromise had been reached to lengthen the moratorium on Internet taxes to 2006 but allow local governments to collect taxes. It is unclear whether that proposal is still on the table.

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