Internet sales should be taxed, Romney says

Massachusetts residents may have to pay sales tax on items ordered on the internet, although officials involved in the decision say nothing definite will be decided in the immediate future.

A law signed by Gov. Mitt Romney last month includes the state in the Streamlined Sales Tax Project, a group founded in March 2000 that discusses common problems with collecting sales tax, including those from internet sales, according to Tim Connolly, communications director for the Mass. Dept. of Revenue. The department will represent the state at the meetings, beginning with one held in Indianapolis on May 19 and 20.

“What Governor Romney signed was a provision that allows state officials to attend the next series of meetings the Streamlined Sales Tax will have,” Connolly said. “[A decision about the tax is] certainly not something that’s imminent.”

Connolly said 38 states participated in the organization last year, a number that is growing with the addition of such states as Massachusetts this year.

He said an often-cited study from the University of Tennessee reports that Massachusetts missed out on about $200.6 million in internet sales tax in 2001.

Romney spokeswoman Nicole St. Peter said the governor signed the bill after a suggestion from the legislature.

“It was part of the budget balancing bill for the fiscal year ‘03,” St. Peter said. “We were really the only state who has a sales tax who had not been part of the group prior to this year.”

Current law allows internet businesses to collect taxes only if they also have a physical store in the state, according to Bill Wyatt, public affairs manager for the National Conference of State Legislatures, which heads the Streamlined Sales Tax Project. He said collection is considered “too burdensome” since there are more than 7,500 taxing jurisdictions in the country.

“The goal of the project is to create a voluntary system where retailers who sign up to use the system, through technology, will be able to collect sales tax,” he said. “In exchange for voluntarily using this technology, they will receive less liability in terms of auditing from the government. They would also receive compensation for collecting the sales taxes.

“This is just a process to level the playing field between the main street retailers and the online retailers.”

One of the first steps of the project is to create common definitions for all items in all states, Wyatt said.

According to the National Governor’s Association website, problems arise when dealing with an item like orange juice, since some states classify orange juice as a fruit and tax it, while others classify it as a beverage and do not tax it. Once universal definitions are established, the technology can be developed and distributed to businesses in an attempt to collect the tax.

“The retailer would collect the money and remit it to Massachusetts,” Wyatt said. “The technology that is being developed would make that fairly easy.”

Wyatt said each state can still have its own rates for taxing, but the definitions must be consistent in order for the technology to work.

“In order for us to make the streamlined sales tax mandatory, it would take an action of Congress,” Wyatt said. “Once the technology is there and the burdensome barrier that the Supreme Court had set is eliminated because of the technology,” he said, referring to the 7,500 taxing jurisdictions, “Congress will go ahead and tell us we can [enforce the law]. Until that process, it’s going to be voluntary on behalf of the retailers.”

Chip Ford, director of operations for the Citizens for Limited Taxation, said he thinks there are two problems with the law that need to be dealt with before it can be passed on a national level.

“[First], the federal government mandates [taxes] and the states are trying to come up with a solution to it,” he said. “States can’t impose this unilaterally.”

“The second problem is you have some states that don’t have sales tax,” and the definitions would have to satisfy all of the states, including those that do not have sales tax, he said.

“It’s an interesting concept, but I think they have a long way to go,” he said.

Suzanne Hawes, owner of Joy of Socks, a store in Rockport, Mass., which has an affiliated online division, said she thinks it could be time-consuming for a small businesses to learn how to use the technology and pay the applicable tax.

“We’re hoping even if the laws are passed, they might not affect us, but maybe that’s just wishful thinking,” she said.

Hawes said she thinks consumers will think of the tax as an additional fee they must pay in excess of shipping. She said she thinks some people might spend more in order to “justify” paying the tax.

“I think sometimes the convenience factor of the internet will override [the tax],” she said.