INTERNET COMMERCE HAS BIG IMPACT ON TAXES

Shopping on the Internet is quickly growing into a big chunk of the retail world. At the same time shopping on a computer is becoming more and more popular, there are city, county, state and federal officials watching closely to see how tax revenue will be affected.

For now, e-commerce retailers are operating under a moratorium on the collection of sales taxes imposed by state and local governments. That moratorium will soon expire. Then what?

Already there are indications of how taxing entities would be affected if Internet sales continue to be exempted from sales taxes as the online marketplace expands. A recent audit of counties in Missouri shows a dip in sales-tax revenue that is at least partially attributed to Internet sales.

Should e-commerce grow as large and as fast as many expect, state and local governments would see a drop in revenue large enough to cause financial stress.

This is particularly true in areas like Cape Girardeau County where local governments rely heavily on sales-tax revenue to offset or replace property taxes. Over the past two decades, more and more sales taxes have been authorized to pay for everything from government operating expenses to such specific uses as street improvements.

State officials already are working on legislative proposals and plans for when the current moratorium on collecting Internet sales tax expires. At the same time, there is a proposal in Congress -- sponsored by U.S. Sen. John McCain -- to extend the moratorium indefinitely.

State and local officials are naturally concerned about any effort to prevent sales-tax collections as online commerce expands. They see more and more of their future revenue becoming exempt from local taxation.

And even if the moratorium is lifted, collecting sales tax on Internet sales might not be an easy proposition.

State and local governments already miss out on millions of dollars of uncollected sales-tax revenue on mail-order and telephone sales of merchandise. Current law requires buyers to pay a substitute sales tax called a use tax, but very few do so, and enforcement of use-tax collections is lax to say the least. Even state tax officials agree that use-tax collections are minimal -- and they worry that many of the same problems would arise if Internet sales were taxable.

No sales tax, of course, is an incentive to many buyers who stand to save 6 percent or 7 percent on purchases. (Automobile sales taxes are a part of the licensing and registration process and aren't -- and wouldn't be -- affected by Internet sales.)

Just as Internet merchants have found creative and attention-grabbing ways to snare a growing number of customers, governments that rely on sales taxes are going to have to find innovative and foolproof ways to collect taxes on Internet sales, provided the federal government doesn't try to declare such sales to be tax free.