Wednesday, March 28, 2001

DMA Urges Congress on Internet Tax Legislation

Frank Julian, Chairman of the Direct Marketing Association’s (DMA) Sales and Use Tax Steering Committee, has recommended to the U.S. Senate Commerce Committee that no additional tax burdens be levied on remote sales. Julian, who also serves as Operating Vice President and Tax Counsel for Federated Department Stores, Inc., said the new taxation would put another brake on an already slowing economy.

Julian also voiced his support for Senate Bill 288, introduced by Sen. Ron Wyden (OR) and Sen. Patrick Leahy (VT). The proposed law would place a permanent ban on Internet access taxes, addresses sales tax simplification, protects consumer choice, ensures that small, entrepreneurial businesses are not overly burdened by new tax regulations and makes certain that no new tax collection system will be passed without Congressional review.

"It would place intolerable burdens on interstate commerce if new tax regulations mandate merchants to collect remote sales taxes, which are taxes in states where retailers do not have a physical presence, or nexus," Julian warned. "Remote sellers, such as Internet-based companies and cataloguers do not enjoy the benefits of local taxation, such as fire and police protection and schools. As a result, they should only be required to pay remote taxes, if they are mandated, after there is substantial simplification of the more than 7,600 tax codes in the U.S."

"Unless Congress substantially simplifies the myriad of confusing and inconsistent sales tax regimes, growth in the borderless marketplace will be thwarted," Julian testified.

"I believe the Senate bill recognizes that we need time to assess the most effective and fair method to work with this new generation of commerce," said H. Robert Wientzen, President and CEO of the DMA. "A 21st century economy, driven in large part by new technology, should not be shackled by a 19th century tax mechanism."

DMA, the leading and largest trade association for direct and interactive marketers, has stated that Senate Bill 288 is an effective vehicle to determine the most appropriate and fair method to work with this new generation of commerce.

"There are more than 7,600 different sales tax jurisdictions in the United States today, each with its own tax rate, and many with their own tax base and rules and regulations," Wientzen continued.

Julian reported to the Committee that the number of taxing jurisdictions has tripled since 1967. "This proliferation of taxing jurisdictions is symbolic of the ever-increasing complexity of the existing sales and use tax systems."

On behalf of the DMA, Julian urged the Senators to:

- Establish one sales tax rate for all commerce – remote or over-the-counter.

-Provide a reasonable collection allowance to compensate all sellers (remote and over-the-counter) for the cost they incur in collecting sales and use tax.

- Enact nexus standards for business activity taxes, thus eliminating uncertainty and the potential for double taxation.

- Place a permanent moratorium on Internet access fees, promoting web availability for all.

- Extend the application of traditional tax rules to remote commerce, thus preventing multiple and discriminatory taxes.

Julian noted that many states have begun making strides to simplify their sales tax systems. But, there is a problem since some proposed simplification does not go far enough. Many state tax administrators have tirelessly been working since March 2000 on the Streamlined Sales Tax Project (SSTP), which is designed to develop a simplified tax system. On behalf of the DMA, Julian applauded the efforts, but considers these efforts, to date, to be inadequate since the SSTP proposal fails to include:

1) One tax rate per state.
2) Business activity tax nexus standards.
3) Simple definitions for items such as "clothing."

For example, Wientzen pointed out that a pair of sneakers may be considered sportswear, and thereby taxable, in one state, while they may be considered clothing and non-taxable in another state. To compound the problem, each state and thousands of sub-state jurisdictions have varying tax rates.

"The sales and use tax laws must be substantially simplified and made more uniform," Julian told the Committee. "The sales tax system developed by the SSTP falls into the category of ‘simplification light.’ While it alleviates some burdens on sellers, it would nonetheless result in undue burdens on interstate commerce if all sellers were required to collect in every state under this system. It also relies too heavily on software that does not yet exist."

Accountants Need Not Fear Online Tax Filing Growth
Jupiter Media Metrix, a global leader in market intelligence, reports that while 4.2 million US online households are expected to prepare their own taxes on the Internet this year, up from about two million last year, the do-it-yourself-online method remains unlikely to reach spectacular adoption levels or cut into traditional preparation methods any time soon. According to a Jupiter Online Consumer survey, 38 percent of people online in the US plan to use an accountant this year, 24 percent plan to prepare their own taxes by hand, 19 percent plan to use off-line tax software and five percent plan to use a do-it-yourself solution on the Web (up from four percent last year).

“While do-it-yourself online tax prep is growing steadily, two-thirds of online users acknowledge they are reluctant to use these services for reasons such as security, privacy or reliability,” said Rob Sterling, senior Jupiter analyst. “The greatest potential for Internet tax solutions will be their use as collaborative hubs, benefiting financial institutions, CPAs, financial planners and their business and consumer clients.”

According to Jupiter analysts, large financial institutions will drive the development of these financial service hubs due to their larger IT resources. Businesses with a competitive outlook must embrace the efficiencies of these platforms to secure and strengthen customer relationships beyond taxes and into other periphery services such as cash management, payroll and electronic bill payment/presentment, among others.

Use of the Web for All Tax Purposes
Sterling underscores that the potential of financial service hubs is demonstrated by the increasing use of Web sites offering tax-related resources. According to Media Metrix ratings data, unique visitors to tax sites** increased 27 percent, from 12.9 million in February 2000 (last year's peak month) to 16.4 million in February 2001. Meanwhile, the average time spent at these tax-related sites increased 42 percent, from 22.6 minutes per person in February 2000 to 32.1 in February 2001.

“Media Metrix began measuring online behavior even before the advent of the online tax form,” said Doug McFarland, president, Media Metrix, a Jupiter Media Metrix unit. “Over the past two years, we've observed an intense upswing in the number of users, the number of sites catering to tax-filers' needs and especially in the amount of time spent on tax sites. While the Internet may not have lived up to all of its early promises, one thing Media Metrix has observed is that it empowers individual users to assume greater control of their personal finances, including the tax process.”

The greatest percent-increase in traffic and usage-intensity occurred among surfers at home. While unique visitors at work increased 19 percent, from 5.0 million to 5.9 million, visitors at home increased 30 percent, from 9.8 million in February 2000 to 12.7 in February 2001. And while surfers at work spent slightly less time at tax sites this year (19.4 minutes on average in February 2001 versus 21.6 in February 2000), time spent by surfers at home soared 72 percent, from 18.9 average minutes to 32.6 over the same time period.

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