A taxing debate over Internet taxes
November 15, 1999
by Keith Perine
(IDG) -- Amid infighting, jockeying, and good old-fashioned lobbying, the blue-ribbon panel studying whether to bring sales taxes to e-commerce is inching its way toward a verdict. And from the looks of several proposals that the Advisory Commission on Electronic Commerce will consider next month, the anti-tax forces are running way ahead.
The Internet Tax Freedom Act, passed by Congress last year, imposed a three-year moratorium on state and local sales taxes on retail e-commerce, as well as on Internet access taxes. That legislation created the commission, which includes two state governors and several tech-industry executives, and asked it to study the issue and report back to Congress by next April.
The commission seems to agree on several points, including a permanent ban on Internet access taxes and international e-commerce tariffs, and the abolition of the 3 percent federal excise tax on telecommunications. But the central question of whether and how to tax retail e-commerce is still hotly disputed.
At the commission's September meeting in New York, Governor Michael Leavitt (R-Utah) tried to make an end-run around the commission by asking it to consider a proposal from the National Governors' Association, which Leavitt chairs. But Leavitt's foes on the tax commission – including its chairman, Gov. James Gilmore (R-Va.) – quickly turned Leavitt's request into a general call for proposals, which will frame the debate at the commission's December meeting.
So far, the forces on the commission have arrayed themselves into three camps. Some, such as Americans for Tax Freedom President Grover Norquist, oppose any form of taxation that would affect the Internet.
"The Internet shouldn't have to change," says commissioner Stan Sokul, a public policy consultant aligned with the anti-tax camp. "State and local governments should have to change their archaic systems to fit the new economy."
Dallas Mayor Ronald Kirk, on the other hand, is among the members who argue that Internet businesses shouldn't be exempt from supporting government services like fire departments, police departments and schools.
A third group of commissioners, including AT&T Chairman C. Michael Armstrong and Charles Schwab President David Pottruck, is holding its cards close to the vest.
But the anti-tax camp has been the most prolific, submitting a total of four proposals so far, including one from Commissioner Gilmore. The pro-tax faction has gathered behind the governors' association proposal, which will attempt to counter complaints about complex and burdensome tax codes by streamlining the process. It calls for the development of a new software program that would be administered by a "trusted third party," which would mediate the collection of taxes from e-retailers. The governors' proposal calls for states and e-retailers to adopt the new electronic collection system voluntarily, but stops short of expressly calling for state and local taxes on interstate e-commerce.
Gilmore's strongly worded proposal calls for a permanent ban on e-commerce sales taxes and the repeal of the excise tax. Gilmore says that the U.S. should embrace tax-free e-commerce "in order to realize the Internet's tremendous social and economic potential." The e-Freedom Coalition, spearheaded by Norquist, rolled out its own proposal today, which largely mirrored Gilmore's.
Rep. John Kasich (R-Ohio) threw his hat into the ring this week, introducing a bill into Congress that would outlaw Internet taxes. Rep. John Boehner (R-Ohio) is also sponsoring the measure.
The governors' association blasted Kasich's bill as unconstitutional and discriminatory. Kasich fought back, calling the governors' proposal "something I would've read about had [novelist George] Orwell done a follow-up to '1984.'" He urged the anti-tax commissioners to hold their ground against their opponents.
"What I fear most about a commission is compromise," said Kasich. "Because compromise means we lose."
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