Archive for Tuesday, October 31, 2000

Kansas ‘experiment’ to tax online purchases

October 31, 2000

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Shopping for gifts online could get more expensive this holiday season as state officials try a new computer program to capture sales taxes on Internet purchases.

Kansas is one of four states experimenting with computer software designed to help level the playing field between traditional retailers and those who make sales on the Internet and usually don't charge sales taxes.

Only a handful of businesses are expected to participate.

In Lawrence, two of five residents made an Internet purchase last year. A survey conducted for the Lawrence Chamber of Commerce found that 15 percent of residents said they shopped on the Internet specifically to avoid sales tax.

"To some extent, I think, it's comparable to how drastic things first were when the (mail-order) catalog came out," said Bill Sepic, the chamber's president and chief executive officer.

The state Department of Revenue is asking online businesses to volunteer for the program, which could help lead to a national program, said Karla Pierce, revenue secretary.

The software would calculate the sales tax for each purchase and charge each consumer's credit card. The software vendor then would collect the money and return it to the proper state.

Online firms with a physical presence in Kansas are being approached first but have yet to be identified.

Kansas estimates it will lose as much as $5 million this year to uncollected taxes on Internet purchases, Pierce said. Traditional businesses charge customers sales tax, which in Lawrence amounts to 6.9 percent tacked onto the retail price.

"Dot-coms have more than a virtual advantage over traditional marketplace businesses," she said. "Designating cyberspace as a tax-free zone could result in death-by-taxes on Main Street."

With support from the National Governors Assn., the pilot program also is being launched in Michigan, North Carolina and Wisconsin.

Difficulty of administration is one reason online retailers typically don't collect such taxes.

For example, calculating sales rung up at registers at the Lawrence Wal-Mart involves hundreds of transactions daily at one tax rate. But tracking online sales even within the same county could mean dozens of different rates. In Kansas, sales tax rates can vary from city to city and county to county.

The new program expected to be running in some businesses for the winter holidays could reduce the administrative burden.

"This is an experiment," said Scott Holeman, a spokesman for the Revenue Department. "The whole argument against Internet taxes was that it's going to be too much of a burden for retailers. If you take away that burden, you end up with a level playing field."

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