WASHINGTON - Creating a mechanism for collecting sales taxes on electronic commerce transactions could be a boon for banks.
At first blush, the plan to shift responsibility for collecting sales taxes from the businesses selling goods to a trusted third party that would calculate and pay the tax sounds like a business opportunity for financial institutions.
The proposal is one of 13 on the table today and Wednesday in San Francisco at a meeting of the Advisory Commission on Electronic Commerce, a group of government and business leaders that is scheduled to provide Congress with recommendations in April regarding taxes for business conducted on the Internet.
Like many other companies doing business on the Internet, banks have a broader concern that states will eventually go beyond a sales tax and want to tax their income. And until it is clear how banks would be compensated as these "trusted third parties," the industry remains skeptical.
"The initial reaction is run for the hills," said Donna J. Fisher, director of tax and accounting for the American Bankers Association. "But if it looks like a business opportunity, [banks] may be very interested in it."
This plan for collecting state taxes, entitled "Streamlined Sales Tax System for the 21st Century," was written by Utah Gov. Michael O. Leavitt, one of the commission's 19 members. The group is headed by Virginia Gov. James Gilmore and includes members from big business, such as David Pottruck, president and co-chief executive of Charles Schwab & Co. Congress commissioned the group in October 1998 as part of the Internet Tax Freedom Act, which placed a moratorium on electronic commerce taxes by jurisdictions until an array of questions are addressed.
Under Gov. Leavitt's proposal, the trusted third party would instruct credit card companies to send two payments on a single transaction - one to the business for the cost of a product and the other to the state for the sales tax.
Tax and credit card experts say the states are assuming that software can be easily developed to handle it. But a spokesman for MasterCard International said, "I don't think the plan is worked out enough to indicate MasterCard or financial institutions want to be first in line to take a crack at this."
Software to handle the additional steps is being developed, said Neal Osten, senior committee director for commerce and communications at the National Conference of State Legislatures.
"We've been led to believe that some of the credit card companies are developing software themselves for that purpose, and some of the ATM networks are developing software for similar activity for debit sales," he said.
