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Archive for Tuesday, December 7, 1999

E-COMMERCE POSES THREAT TO CITY PURSE

December 7, 1999

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Lawrence commissioners who attended last week's National League of Cities conference said sales tax lost to e-commerce is an issue all cities will battle.

Online sales will pose a big challenge to cities like Lawrence that depend on retail sales taxes to fund large portions of their budgets.

"We just know it's a matter of time before the mom-and-pop stores and the regular downtown stores are damaged by these sales that occur without any taxes on them," Lawrence City Commissioner Marty Kennedy said.

Kennedy was among four Lawrence city commissioners who attended the National League of Cities meeting last weekend in Los Angeles, where the threat of untaxed "e-commerce" to local government coffers was a big topic.

According to some estimates, Mayor Erv Hodges said, up to 9.4 percent of all retail sales could be done over the Internet by the year 2003.

That translates to a loss of nearly $1.4 million a year to the city of Lawrence, which gets about 43 percent of its general fund money from local sales taxes.

"You have to ask yourself what's going to make up that difference, and who are we protecting by not taxing the Internet?" Hodges said.

While there was general agreement that municipalities stand to lose money as e-commerce grows, there was less agreement about what to do about it.

Among the questions: Should online merchants remit tax payments to thousands of different jurisdictions, or should the burden fall on online consumers.

"There are issues about different jurisdictions having different policies," Commissioner Mike Rundle said. "They need to try to simplify it so every mom-and-pop Internet site doesn't have to deal with thousands of variations on the theme."

"There are a lot of intricacies in trying to collect and return the money to the appropriate taxing entities," Commissioner Jim Henry said. "Different cities and states have different tax structures."

Shirley Sicilian, director of policy and research at the Kansas Department of Revenue, said Internet sales are really no different than catalog and direct-marketing sales, and Kansas already has a law that applies to them.

The problem, she said, is that the "use tax" -- which is identical to the state sales tax -- puts the burden on consumers who usually aren't even aware that they are supposed to pay it.

Sicilian said a multistate group has looked at a number of options to simplify the system.

One idea is to make remote merchants responsible for remitting local sales taxes by providing them with computer software that tells them how much to collect for each jurisdiction.

Another idea would create a nationwide system where an independent third party would collect and remit sales taxes on all remote sales.

"What states have been doing is trying to simplify the tax laws so remote sellers will voluntarily agree to collect local taxes," Sicilian said. "Simplification would also benefit the downtown merchant, so we think this is the right approach."

-- Peter Hancock's phone message number is 832-7144. His e-mail address is phancock@ljworld.com.

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