Everyone expected Utah Gov. Mike Leavitt to unveil a plan by governors to end what has become a tax-free zone for retail sales on the Internet.
He did but with a surprise twist. He wants a new experimental tax system to be voluntary for a few years -- and maybe lead to a new permanent system to replace current sales taxes he says are archaic, unfair and unable to keep up with technology."The existing system of sales tax will not work in the 21st century," Leavitt told a packed news conference at the National Press Club. "It is unthinkably complex and incompatible with the direction of commerce in the world. It must be modernized."
But not tomorrow, Leavitt said. Probably the climate won't be right for these radical changes for six to eight years.
Voters will go to the polls soon to cast votes for their favorite candidates, and no tax issue goes down easily in an election year, Leavitt said.
In Utah, Gov. Mike Leavitt is in the thick of his budget season. As part of routine gubernatorial duties, he meets with his staff, signs proclamations and hosts foreign visitors. He listens to groups of concerned Utahns, the American Indian community one day, Sudanese refugees the next.
But outside Utah, in the national arena with which Leavitt is increasingly familiar, this state's likable chief executive officer is embroiled in what has been couched as a "backroom brawl" about whether to tax sales on the Internet.
When the debate is over -- and the governor says it must be settled sometime -- Leavitt hopes buying on the Internet will be more fair and that Utah will be able to collect millions in lost sales tax.
Leavitt, chairman of the powerful National Governor's Association and a member of a commission established by Congress to hammer out Internet tax issues, outlined the proposal Monday with three reporters in Salt Lake City before flying to Washington, D.C.
He was emphatic: "This is not a new tax," he said from his office at the Capitol. "The Internet itself should not be taxed." He believes that individual components of the Internet system should not be taxed.
In recent weeks, behind-the-scenes jockeying for position has become increasingly more aggressive in preparation for a December meeting of the Advisory Commission on Electronic Commerce. Leavitt is a member of the commission, and has gone toe-to-toe with the commission chairman, fellow Republican Gov. Jim Gilmore of Virginia, a no-tax proponent.
Here's how Leavitt illustrates the problems with the current system:
-- It's not fair to consumers. Why should a shopper have to pay sales tax at the local Eddie Bauer's store and not on a computer transaction? "Imagine pulling into a gas station where there are three pumps . . . but only one of the three is charging gasoline tax," Leavitt said Tuesday.
Inequity in the system is showing up in Leavitt's own household.
Utah First Lady Jackie Leavitt has resisted Internet shopping. But the family needed a sofa for the basement and on Leavitt's suggestion, Jackie went online to do her shopping. She searched furniture Web sites and found a sofa she liked, then turned to the Yellow Pages to find local furniture stores that carried the same sofa.
"She drove to the store, sat on an identical sofa in a different color, felt the fabric in the sample book and placed the order over the Internet."
Why buy on the Internet, Leavitt asked? Why not buy from the store while you were there? With shipping costs added to the tab, the price was about the same. Easy, Jackie Leavitt said, "No sales tax."
"We need to talk," Leavitt told his wife.
-- Big retailers like Wal-Mart or JC Penney know they must do a combination of "bits and mortar" business in the new century. This means some business will be done in the store, some on the Internet. But to collect sales taxes, those companies must know a litany of regulations and tax laws that vary in each of the 50 states. They must be responsible for audits and tax challenges that can come from each state and each county or city within each state.
A simpler system would be easier for these retailers.
Leavitt's proposal, submitted to the advisory commission Monday and supported by several national associations of counties, mayors, legislators and state governments, would use state-certified software and third-party service providers to streamline sales tax administration.
Say a consumer made a $200 purchase off the Internet. The third party would charge the consumer $212 for the purchase plus sales tax. It would collect the money and distribute the cost of the purchase back to the retailer, the sales tax to the state and collect a small commission for itself.
"Only those who voluntarily choose will be involved. This is a radical 21st century idea. Government saying to business, 'Here's a new system; we only want you to use it if it's better for you.' "
It is impossible to make radical changes in a system as complex as the sales-tax system, Leavitt said. The new concept will allow parts of the proposal to be tested and proven prior to implementation.
The NGA Web site detailing the proposal puts a positive spin on the proposal, saying it will eliminate costs and burdens associated with sales tax compliance; eliminate the need for businesses to file sales tax returns, make payments and keep records; eliminate sales tax audits; simplify the procedure for claiming exemptions; and eliminate sellers' "good-faith" responsibility when they accept exemption certificates.
"This is a radical simplification, and a massive reduction of the burden that is shouldered by retailers today. When fully implemented, the federation of tax administration indicates savings in excess of $4 billion a year in administrative costs," Leavitt said.