Delaware Senator Proposes Internet Sales Tax

More and more Americans are discovering that online shopping can be quick, convenient and, in many cases, tax-free, since many Internet retailers don't charge sales tax.

Thus, residents of Maryland, Pennsylvania, New Jersey, and other nearby states have less incentive to drive to Delaware when they can buy merchandise tax-free with a few strokes on a computer keyboard.

Alarmed by the growing trend, Carper, D-Del., is pushing legislation that would force Internet retailers to begin charging sales tax to all customers who live in states with a sales tax. He hopes that will lure out-of-state shoppers back to Delaware.

Because Delaware has no sales tax, residents of the First State would still be able to buy goods tax-free on the Internet.

"Part of Delaware's attraction to tourists is that people can come and shop until they drop and never have to pay a dime of sales tax," Carper said. "The Internet is undermining Delaware's unique status."

Carper said Internet sales aren't a huge problem for Delaware now, but could be in the future.

Internet sales are expected to hit $41 billion this year, only slightly above 1 percent of total U.S. retail sales but up significantly from the $32 billion spent last year.

Next year, Congress is expected to take up legislation giving states the authority to collect sales tax from Internet retailers the same way they do from shops located within their borders. The bill would exempt the five states with no sales tax--Delaware, Alaska, Montana, Oregon, and New Hampshire.

The bill, sponsored by Sen. Byron Dorgan, D-N.D., has substantial support from both parties in Congress. It's also backed by state governments, which along with local governments lost out on $13.3 billion in uncollected sales tax from catalog and Internet purchases in 2001, according to a University of Tennessee study.

Owners of brick-and-mortar shops also support an Internet sales tax, arguing that it's not fair for them to have to collect sales tax when their Internet competitors do not. Some major retailers voluntarily charge online sales taxes, saying they want to bolster the effort to require their Internet-only rivals to do the same.

"For states with a sales tax, it is a fairness issue," said Carper, former chairman of the National Governors Association. "I don't know what you say to a retailer who has a store in your state who provides jobs and collects sales tax to pay for schools, transportation, health care, fire, and police. Do you show your appreciation by giving their Internet competitors an advantage?"

Internet retailers contend that they shouldn't have to collect sales tax because they and their employees don't use the schools or roads in many of the states where they ship their products. They also argue that collecting sales tax in 45 states with different tax codes would be an administrative nightmare, and that forcing online shoppers to pay both sales tax and shipping charges will hurt Internet commerce.

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