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Governors back tax on Net sales

A majority of the nation's governors adopt a resolution calling for a "flat" state tax on all online sales and mail order purchases.

A majority of the nation's governors adopted a resolution today calling for a "flat" state tax on all sales made over the Net and through mail order purchases.

With high-tech hotbeds California and Virginia dissenting, the National Governors Association urged Congress to enact the so-called Internet Development Act of 1998, which also would prohibit new taxes on Net access.

Adopted at its winter meeting, the move by the NGA comes as separate federal legislation that would place a five-year ban on states and localities passing new taxes specifically aimed at online access, e-commerce, and other Net services is progressing in Washington. House Republicans have promised to vote on the Net Tax Freedom Act legislation by this spring.

The Net Tax Freedom Act has gained momentum despite ongoing opposition from U.S. mayors, state lawmakers, and some members of the NGA, who say the legislation strips them of their rights to tax and to create new government revenue streams.

As reported in November, a group of 29 state legislators also mulled over the idea of creating a low, uniform e-commerce sales tax on goods and services that are only sold online. As with mail-order sales, some state lawmakers fear that digital shops will never collect and remit local and state sales taxes from Net shoppers.

"Today, there are thousands of jurisdictions across the country imposing sales taxes. The new, simplified system will reduce costs and administrative burdens for businesses and consumers," the NGA resolution states. Some assert the uniform levy would make up for lost revenue as online-only vendors begin lifting profits from brick-and-mortar stores that have to pay local and state taxes.

"Many states fund local government, roads and highways, law enforcement, and education by sales tax revenues. If people begin to buy goods and services via Internet and not at the local grocery store, small businesses in local America will be paying the taxes that big businesses in catalog America won't be paying," Oklahoma Gov. Frank Keating told Reuters in an interview.

If made law, the NGA's proposal would not apply to businesses whose annual gross sales are less than $200,000.