Transaction tax risk in web sales bill, finance lobby says

A U.S. Senate bill that would let states impose sales taxes on purchases from out-of-state sellers could lead to state-level financial transaction taxes, a Wall Street trade association said.

“We believe the impact of this legislation on trade in services has not been adequately explored by Congress,” said Ken Bentsen, acting president and chief executive officer of the Securities Industry and Financial Markets Association, said in a statement released today.

“The bill could lead to unexpected costs being passed on to consumers of financial services, including sales taxes on services or state-level stock transaction taxes,” Bentsen said.

Professional services and financial products typically aren’t taxed by states. Under the bill, states could expand their sales tax bases and may have an incentive to look at products and services predominantly purchased from out-of-state sellers.

They would have to apply the same tax to intrastate transactions. The bill removes one barrier because it allows cross-state transactions to be taxed. For example, Alabama could decide to tax legal services and apply the same rate to a Birmingham resident’s local lawyer and New York-based estate planner.

Between Businesses

Many states haven’t imposed taxes on services because many of the transactions are often between businesses, said Helen Hecht, chief counsel of the Federation of Tax Administrators, a group of state officials.

“I can foresee the same kind of difficulties that states historically” have encountered, she said.

The bill, S. 743, will have its first procedural vote today. It is backed by retailers such as Wal-Mart Stores Inc., who say Internet-based business have an unfair edge, and opposed by direct marketers and anti-tax groups who say it will give state tax authorities too much latitude to reach outside their borders.

Senators supported the concept of the legislation in a non-binding 75-24 vote last month.

EBay Inc., which opposes the bill, has been sending e-mails to its users, maintaining that the $1 million exemption for small businesses isn’t big enough.

“Those fighting for this change refuse to acknowledge that the burden on businesses like yours is far greater than for a big national retailer,” John Donahoe, the company’s president and CEO, wrote in the e-mail. “It may harm your ability to grow and costs jobs, including yours.”

Bloomberg News

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