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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.

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