During the January 19 closing plenary session of the Conference's Winter Meeting, Dearborn Mayor Michael A. Guido provided mayors an update on a pending proposal to help states reform their sales and use taxes to facilitate the collection of taxes on Internet commerce. He told mayors he had been working with state and local representatives as well as representatives from the private sector in the Streamlined Sales Tax Project. This Project involves officials from 35 states who are working closely with representatives from the private sector and local governments to develop recommendations to simplify and ultimately remove or reduce the burden on Internet companies and other remote sellers to collect state and local taxes.

Under current law, local merchants are required to collect state and local sales taxes but a 1992 Supreme Court decision (Quill Corp. v. North Dakota) prevents state and local governments from requiring remote sellers (merchants physically located in a different state than the customer) to collect their taxes. The Court concluded that it would be overly burdensome to require these merchants to figure out the tax rate and comply with the tax rules of 7, 500 different state and local governments. The Court also said since the issue involves interstate commerce, Congress would have to grant states the authority to impose a duty to collect on remote merchants.

Mayor Guido explained that the goals of the Streamlined Sales Tax Project are to simplify state and local sales taxes by eliminating or reducing the burden on remote sellers, and to urge Congress to approve legislation authorizing states to impose a duty to collect on remote sellers. He said, on December 22 the Project approved recommendations for model legislation and a multi-state agreement which states will be encouraged to adopt to facilitate the collection of taxes on remote sales.

The recommendations have been submitted to the National Conference of State Legislatures and the National Governors' Association where additional changes are likely to be adopted. Mayor Guido encouraged mayors to examine or designate someone to examine the model legislation and multi-state agreement (which can be found on the Internet at www.streamlinedsalestax.org and to let Larry Jones of the Conference staff know how it will impact their local sales and use taxes.

He explained that the Project is aimed at closing the loophole in current law which allows remote sellers to sell items over Internet tax free. This gives "Internet and mail-order companies an unfair competitive advantage over our local merchants and it erodes our tax base," he said.

In summary, Mayor Guido told mayors that while he strongly supports the goals of the Project, he is concerned about two provisions in the proposal that call for a single tax base and state administration of both state and local sales taxes. He said local governments in some states currently have a different tax base than their state, and some also administer their own taxes. For example, he said some states do not tax food but allow their local governments to do so. And some states allow local governments to collect and administer their own taxes, and audit merchants when necessary. Because some local governments tax more items than their states and use different audit procedures which allow them to recover more of their unpaid taxes, changing to a single tax base and state administration could cause them to lose a huge amount in revenues.

While Mayor Guido acknowledges that state and local sales taxes are "out of step with the new world economy," he believes technology can be used to help simplify Internet and other remote transactions. He is delighted that the Streamlined Sales Tax Project recommended retaining local option tax rates. If "companies like Amazon.com can track 28 million products and 25 million customers, surely they can apply the appropriate sales tax rate to a customer's order." He further explained that Taxware International and a number of other vendors have developed software that automatically calculates the sales tax rate on a purchase based on the customer's zip code.

Mayor Guido believes that unless the tax Internet tax loophole is corrected, state and local sales tax revenues will seriously erode as sales over the Internet explode in growth. He pointed out that based on a recent report by Forrester Research, business to consumer sales over the Internet are expected to grow to $184 billion by the year 2003. And, according to a study released by the University of Tennessee last year, state and local governments could lose an estimated $20 billion in revenues by 2003 due to electronic commerce.