TM Editor's Note - A Taxing Situation
By Hallie Mummert
I would rather be part of the postal reform commission than determine whether all sales channels should be taxed. How certain can one be that taxing all offline and online purchases will not have a dampening effect on overall sales?
I'm sure industry associations and direct marketers just hope the issue will go away or that someone else will step in to represent their interests. After all, Quill successfully fought off an attack in 1992, when the states wanted to remove nexus from the sales tax equation for direct marketers. The B-to-B cataloger was able to argue that complexity of implementation for more than 7,500 tax codes was unreasonable. Who could disagree?
The states went back to their corner—until the Internet arrived. Brick-and-mortar operations with no prior thoughts of using direct mail or starting a catalog were plenty excited about having an online sales channel; direct marketers jumped at the chance to add another channel to their mix. Customers were intrigued, but hesitant to fully trust this new medium. Sensing the imposition of sales tax on online purchases could hamper the growth of e-commerce, Rep. Chris Cox (R-CA) and Sen. Ron Wyden (D-OR) drafted legislation that put a moratorium on Internet sales taxes until 2001, then got the moratorium extended until this fall, and are currently working on making the tax ban permanent.
Why are the states in a lather again? Research by the Institute for State Studies, prepared by the University of Tennessee and using data gathered by Forrester Research, puts the damage for missing sales tax revenue on e-commerce through 2006 at $45.2 billion, the American Booksellers Association reports. If you agree with consultant Don Libey that online sales growth is a by-product of channel shifting from taxable channels, you can see why the states will be like a dog with a bone about sales tax.
In fact, 31 states and the District of Columbia have created a Streamlined Sales and Use Tax Agreement that will simplify the many tax codes into a more manageable system. Buh-bye complexity argument. The requirements to enact such an agreement and get federal backing for it, however, are a cobweb of if-thens that I could not begin to tackle in this column.
So, the question of the moment: Do direct marketing channels deserve protection from taxation?