Direct-Marketing Firms and States Discuss Sales Tax Supreme Court's `Two-Edged' Decision Fuels Continued Negotiations. A TAXING QUESTION

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DIRECT-marketing companies and state governments are more likely to agree on voluntary collection of sales taxes following a ruling last week by the United States Supreme Court.

"Both sides are giving ground," says Robert Levering, senior vice president for catalog issues at the Direct Marketing Association (DMA).

The ruling updates a 1967 court decision, which allowed companies that direct market in states where they have no physical presence not to collect state and local sales taxes from their customers in those states.

That exemption helped to grow direct marketing from a $2.4 billion industry back then to sales today of $183 billion just for the mail-order segment. It gave catalog companies, telemarketers, and advertisers on cable TV shopping channels a competitive edge over Main Street merchants. It permits tax revenues currently worth more than $3 billion to escape state and local governments.

Last week's ruling involved North Dakota's attempt to require sales-tax collection by Illinois-based Quill Corporation, a mail-order vendor of office products.

One part of the ruling affirmed that requiring out-of-state companies to collect sales taxes would place an undue burden on interstate commerce.

Mr. Levering says that DMA members wouldn't mind collecting sales taxes if it were not so complex. The US contains 6,500 tax jurisdictions, with tax rates that differ even within zip code areas. Sales tax exemptions vary from one jurisdiction to the next according to the item sold and sometimes even according to the age of the purchaser.

Even with a computer's assistance, a telephone clerk might have trouble calculating the tax properly. Catalog operations would resist filling valuable pages with tax calculation instructions for check-writing customers. All in all, collecting taxes would be six times as costly for a direct marketer as for a local retailer, Levering says.

Direct marketers also want to avoid audits by every state. Sears, Roebuck & Co. undergoes 18 to 20 audits a year and always has three auditors in its Chicago headquarters, Levering says.

In the Quill case, the high court confirmed that Congress has the power to make direct marketers collect the taxes. But don't expect that to happen soon, lobbyists for local merchants and direct marketers agree.

"Congress doesn't like this issue to begin with," says Jim Goldberg, counsel for the National Association of Retail Dealers of America (NARDA). "It's very hard to translate it into votes."

Levering points out that when Congress contemplated such a move in 1989, his organization spurred consumers into writing 700,000 opposing letters - more than were generated by the recent outrage over Congressional pay raises. …


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