State E-commerce Tax Plan A Good Idea

KNOXVILLE — Tennessee’s plan for taxing e-commerce is a good idea, but it will be difficult to implement, a University of Tennessee economist said Tuesday.

Dr. Bill Fox said Tennessee’s Zero Burden tax proposal could help stop the state’s loss of tax revenues to Internet sales. A study by Fox projects that loss to be $293 million by 2003.

The plan approved by the House Finance Committee allows Tennessee to join a multi-state effort to collect taxes on Internet sales. State legislators say at least 12 other states are interested in such a plan.

Fox said varied, complex tax codes among states are a major obstacle to taxing e-commerce. A common, simplified standard would be a huge step toward achieving the tax, he said.

“There is a lot of good news in the Zero Burden proposal,” Fox said. “One of the important aspects of it is that it has states working together to try to find a way to simplify the sales tax.

“The fact that the states are talking about simplifying the sales tax is very good news.”

The Zero Burden proposal is so-named because it would place no burden on out-of-state e-commerce vendors. It would ask that they voluntarily add the price of the state tax to their goods, remit the tax to the state, and receive a percentage of the revenues as an incentive.

Fox said getting volunteers to participate, and forming a network to collect taxes from all the states, would be major challenges.

“Whether or not we can put together a network and the technology that would work well enough, and get firms to voluntarily comply, is much more questionable,” Fox said.

“I think some of the big firms that already are paying the sales tax would be willing to participate, but the firms that are not really a part of the tax system in states like Tennessee would be more difficult to bring into the fold.

“There’s a lot of good news in the proposal. I’m glad that (state leaders) are moving and thinking in that direction, but I suspect we are going to need much work beyond the Zero Burden proposal to get the sales tax to work better.”