 
As Connecticut weighs changes to how it collects sales taxes ”“ including for products sold online ”“ Congress may render some of those deliberations moot.
Last month, Congress introduced a bill requiring retailers to impose a tax for purchases made online, save for sales by small businesses. If passed, the bill would allow states to recoup lost revenue while perhaps boosting business for brick-and-mortar retailers that bemoan business lost to dotcoms.
Last May, New York became the first state to enact a law requiring merchants advertising through state-based affiliates to charge an 8.75 percent tax for any purchases made online, with Amazon.com and Overstock.com promptly demanding a repeal of the law.
More recently, to close the New York”™s budget deficit Gov. David Paterson sought to tax music downloads. Vermont likewise is proposing a “digital goods” tax on audio or visual downloads.
In mid-April, researchers at the University of Tennessee estimated that online sales taxes could help states generate more than $50 billion in revenue over the next three years, revenue sorely needed with sales tax collections down sharply. In Connecticut, sales-and-use tax collections were off 5.4 percent for the first nine months of the fiscal year ending this June, $127 million below their levels in fiscal 2008.
In 1998, Congress passed the Internet Tax Freedom Act that banned federal taxes on Internet access, as well as taxes deemed discriminatory, such as levies based on e-mail volume or bandwidth usage. The law has been extended three times, most recently as the Internet Tax Nondiscrimination Act of 2004. New Hampshire is the lone state in the Northeast among 10 nationally to charge such a tax.
Those laws do not address the taxation of products bought online, however, which are subject to taxes in the same way mail catalog purchases are.
Like other states, Connecticut has long sought to recoup revenue lost to tax havens, whether cyberspace or duty-free shops, imposing a use tax on items purchased elsewhere that are consumed within the state borders. The use tax essentially is collected on the honor system, however ”“ the Department of Revenue Services”™ list of tax delinquents is populated by companies under investigation for not reporting such taxes.
During the high-tech recession of the early part of the decade, New York and several other states sued Walmart and other retailers in a bid to force them to collect and remit sales taxes on items sold online.
In 2001, Connecticut announced a bounty arrangement in which it would share a quarter of any taxes recovered as a result of an investigation using taxpayer data from another state.
In the 1992 decision on Quill Corp. v. the State of North Dakota, the U.S. Supreme Court ruled that a mail-order company with no physical presence in a state did not have to collect use taxes for transactions, despite customers in that state using its software to make purchases.
As a result of that decision, more than 20 states created the Streamlined Sales Tax Project (SSTP) in an effort to simplify the levy and collection of sales and use taxes across jurisdictions. Connecticut and New York have not formally joined the consortium, although Robert Genuario, the director of the state”™s Office of Policy and Management, has stated he supports Connecticut joining the consortium. In the Northeast, New Jersey is a member as are Vermont and Rhode Island. The Connecticut Senate is considering a bill that would require the state to formally track STTP”™s progress.
“This bill is not a cure-all for the issue of Internet taxation ”¦ but passage of this bill does serve a positive purpose,” said Timothy Phelan, president of the Connecticut Retail Merchants Association, in testifying before a committee of the Connecticut General Assembly. “It does create a nexus for certain retailers, thereby increasing revenue to the state. It does level the playing field for some retailers, which we appreciate very much. Passage of similar legislation in New York sent a very positive message to the retail community there, and we think it will do the same here.”
