Nevada County Picayune and Gurdon Times Newspaper Archive

Senator Looks At E-Commerce Taxation; Drug Expenditures Up

American consumers are buying more products over the Internet, and they do not have to pay any state or local taxes when they do.

Commonly known as e-commerce, retail purchases over the Internet amounted to an estimated $20 billion last year and will grow to $39 billion this year. Market surveys indicate that in the early years of e-commerce, well educated males were the typical buyers of products sold on the Internet.

Now, women and teenagers are frequent purchasers of Internet products. Within the next four years, the value of products sold on the Internet is expected to total $184 billion.

This commercial trend has serious implications for state and local governments, and for traditional retailers who maintain a store front, a building or a warehouse in their local communities. Sales of products over the Internet are not taxed.

Congress in 1998 passed legislation prohibiting states and cities from taxing online purchases for a three-year period. Some members of Congress have proposed a permanent ban on taxing e-commerce, and at least one presidential candidate supports a permanent ban.

During the three-year moratorium, a national commission is studying the issue of taxing Internet sales and is required to report to Congress. State and local officials have told the commission that the moratorium pre-empts its taxing authority.

Local governments face a potentially huge loss of revenues as more business is conducted electronically. Some state and local officials are concerned about their ability to provide services that people now take for granted.

Opponents of e-taxation point out that Internet companies sell to buyers who live in all 50 states and in more than 7,000 local taxing entities. They say it would be a crushing burden if they had to compute the tax rate of each individual customer.

Proponents of a tax on Internet sales say that state and local governments should adopt a uniform policy and simplify their tax regulations. They also point out that software is available that automatically calculates the amount of taxes due, depending on the residence of the person making an Internet purchase.

Besides their personal views on taxation, for legislators and local officials there is an additional issue the question of tax fairness. Traditional retail stores must pay local taxes, and therefore are at a disadvantage when competing against Internet retailers. They face a similar disadvantage in competing with mail order retailers who rely on catalogues sales.

Catalogue sales result in a greater loss of tax revenue for state and local governments than the loss resulting from Internet sales, according to the state Finance and Administration Department.

Prescription Drug Proposal

State officials held a public hearing on a proposal to reduce the amount the Medicaid program pays to large pharmaceutical chains. Medicaid is a government health program for people with disabilities, the elderly and the poor. Last fiscal year the Arkansas Medicaid program spent $169 million on prescription drugs.

So far during the current fiscal year, prescription drug expenditures are about 18 percent greater than last year.

At the public hearing, representatives of chain drug stores spoke against the proposal. Social workers and Medicaid recipients spoke for it.