Easley Advocates Internet Tax

State & National Editor

Gov. Mike Easley is among 42 governors with their names on a letter calling for the repeal of a moratorium banning states from collecting taxes from Internet sales.

The governors sent a letter Friday to all Congress members asking lawmakers not to renew the 1998 moratorium.

"If you care about a level playing field for Main Street retail businesses and local control of states, local governments and schools, extend the moratorium on taxing Internet access only with authorization for the states to streamline and simplify the existing sales tax system," the letter states. "To do otherwise perpetuates a fundamental inequity and ignores a growing problem."

Several of the governors who did not sign the letter were from states, such as California and Virginia, that rely heavily on Internet companies.

The moratorium is set to expire in October, but a proposal to eliminate it is sitting in a Senate Finance Committee.

At the request of committee Chairman Max Baucus, D-Mont., the Congressional Budget Office released a report earlier this month about the numerous difficulties in collecting sales taxes from out-of-state entities such as Web-based companies.

The report states that it is structurally difficult for states to collect taxes outside their borders and that the system forces consumers to make purchasing decisions based on possible taxes.

The report also concludes that states could lose $20 billion in potential revenue by 2003.

That kind of money could help states, many of which have struggled to construct a balanced budget in light of a worsening national economy.

In some states, revenue from sales tax can make up to 50 percent of the total tax revenue.

Baucus' spokesman Michael Siegel would not comment about the senator's stance on the issue, but he did say Baucus planned to play an active role in the debate.

"This is very much a state issue," Siegel said. "But he has wanted to play a helpful role in dealing with this issue."

Proponents of the moratorium have argued that a repeal of the moratorium could cripple the nation's Internet commerce industry in the wake of the recent failure of numerous dot-com companies.

The moratorium is based on two Supreme Court decisions that prohibit states from collecting sales tax from companies that do not have a warehouse or some other physical presence such as a warehouse in the state.

Brad Woodhouse, a spokesman for Rep. Bob Etheridge, D-N.C., said the representative was opposed to a repeal of the moratorium because it would hurt Internet commerce.

"The congressman is in favor of the current moratorium to allow the continued buildup of the Internet sales industry."

The State & National Editor can be reached at stntdesk@unc.edu.