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Trade group says its talking with states but that no deal is near on mail-order tax loophole

November 6, 1997

NEW YORK (AP) _ A mail-order trade group is holding talks with states nationwide on how to tax consumers on purchases from out-of-state companies, but said Thursday no agreement has been completed.

The New York Times reported that the Direct Marketing Association and officials from several states would announce Friday an agreement that calls for merchants to begin collecting what is estimated to be $1.2 billion annually in sales taxes.

The association said the report was premature. DMA spokesman Chet Dalzell said his group planned no announcement.

Purchases from companies that sell through the mail, by telephone, cable television or over the Internet are subject to the same tax as a customer’s transactions at a local store. But states have had no way to compel out-of-state merchants to collect the taxes on their behalf.

As a result, catalog retailers and other direct marketers have generally ignored the task. State and local governments have complained that they are losing taxes on $215 billion in annual mail-order sales.

The companies have waged one legal fight after another to maintain the exemption from collecting sales taxes, which the Supreme Court has preserved for businesses that do not have a physical presence in a state.

The Times said companies could continue to refuse collecting sales taxes, but such a decision would be inviting an audit from state tax collectors.

If there is an agreement, it would be voluntary, said Mark Slosberg, a partner at KPMG Peat Marwick in New York who has been following the dispute. ``The companies would not have to participate even if the industry agreed on it.″

Even if there is a voluntary agreement, states might have to first adopt laws involving such tax collections, said the marketing group with more than 3,600 member companies from the United States and 49 other nations.

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