Copyright 2000 Federal News Service, Inc.
Federal News Service
May 16, 2000, Tuesday
SECTION: PREPARED TESTIMONY
LENGTH: 1098 words
HEADLINE:
PREPARED TESTIMONY OF STANLEY S. SOKUL DAVIDSON & COMPANY, INC.
BEFORE THE HOUSE COMMITTEE ON GOVERNMENT REFORM
BODY:
Thank you for the opportunity to
testify today. As you know, I served as a Member of the Advisory Commission on
Electronic Commerce, which studied the issues surrounding Internet taxation. We
issued our report on April 12, 2000, and our statutory tenure expired on April
21, 2000. I am here primarily to urge you not to neglect the privacy
implications of Internet taxation, but would also like to offer some suggestions
for the privacy commission based on my tax commission experience.
The
privacy issues raised by the Internet are just as complex and confusing as the
tax issues. As with taxes, offline privacy rules and expectations do not
necessarily translate well to the Internet environment. Furthermore, different
rules may exist for different situations. Three different federal agencies - the
Departments of Treasury and Health and Human Services, and reportedly the
Federal Trade Commission - are currently working on new privacy rules in their
respective spheres. They have unlikely consulted with each other, however, to
see if consistency is possible or even desirable. A commission process is an
understandable means of sorting through the present confusion.Privacy and
Internet Taxation
If a commission on privacy is created, I hope this
subcommittee will consider an issue that the Advisory Commission on Electronic
Commerce uncovered, but did not resolve. In order for states to effectively
collect taxes on Internet sales transactions, the sales need to be identified on
an individual basis. Such government tracking of consumers' Internet purchases
could have significant privacy ramifications. The most striking example involves
the types of privacy invasions that would have to occur for the states to track
and tax the purchase of digital goods.
The Internet privacy debate
generally focuses on the activities of private entities - how companies compile
online purchase information, and even track Web surfing, for commercial
purposes. The debate revolves around the nature and extent of consumer control
over the collection and use of such information - for example, should an opt-in
or opt-out requirement be imposed on Internet data gathering and sharing
activity.
In contrast, imposing a national system to collect state sales
taxes raises the specter of the government tracking individual purchase
information. In this environment, the consumers would have no control. The only
way for consumers to "opt out" of the government tracking their purchase
activity would be to forego the Internet purchase altogether.
During the
tax commission process, the state and local organizations proposed a
"Streamlined Sales Tax System for the 21st Century." This system would insert a
new layer of requirements into electronic sales transactions - a national
clearinghouse or database - to track Internet purchases so that the proper tax
could be calculated, levied and remitted to the proper state. These new
clearinghouses were labeled "Trusted Third Parties." This Trusted Third Party
system raised some significant privacy concerns, and ultimately the states
stopped advocating the system as a solution before the Commission.
The
effects a new Internet sales tax collection regime would have
on consumer privacy and thus Internet commerce remain unexplored. Confronted
with many concerns but few details, the tax commission adopted a resolution I
authored to recommend that Congress study the privacy implications of Internet
taxation very carefully (attached). This resolution was one of the few items
that attained a 2/3rds super majority to constitute a formal recommendation to
Congress. We recommended that Congress "explore privacy issues involved in the
collection and administration of taxes on e-commerce, with special attention
given to the repercussions and impact that any new system of revenue collection
may have upon U.S. citizens..., "and that Congress "(t)ake great care in the
crafting of any laws pertaining to online privacy (if such laws are necessary)
to avoid policy missteps that could endanger U.S. leadership in worldwide
ecommerce."
Accordingly, because the privacy commission may be a key
vehicle through which Congress explores Internet privacy issues, I would urge
that the privacy implications of Internet taxation be added to the commission's
agenda.
Drafting Issues
Finally, I would like to comment briefly
on two problems the tax commission confronted. First, our commission lost nearly
half of its eighteen-month tenure due to an appointment controversy. The statute
required equal representation from state and local interests and business
interests, and gave the House and Senate Leaders a fixed number of appointments.
When all the appointments were announced, the statutory balance had not been
achieved, and the imbalance took eight months to resolve.
H.R. 4049, as
presently written, provides Leadership with specific appointments, but does not
specify that certain interests must be represented on the commission. Some
tension exists here because balanced representation will help give credibility
to the commission and its work. If the subcommittee ultimately decides to list
the different interests that should be represented, I would suggest that you
carefully account for what will occur if the initial round of appointments fails
to fulfill the representational requirements.
Secondly, the tax
commission operated under a 2/3rds supermajority requirement to report "findings
and recommendations" to Congress. H.R. 4049 presently contains only a simple
majority requirement. I would urge you to consider a supermajority provision.
While the tax commission did not ultimately achieve a 2/3rds result for the bulk
of its report (the privacy recommendation did attain 2/3rds status), the
requirement created a healthy dynamic that encouraged the opposing interests to
work together- and we came very close to achieving a supermajority result.
The tax commission resolved down to three basic interest groups, and the
privacy debate potentially has many more interests at stake. This could be an
advantage to the privacy commission, as there could be a lower likelihood of
polarization and thus stalemate by a determined minority. I believe the 2/3rds
requirement was very constructive for the tax commission, and could be for the
privacy commission as well. If you institute a supermajority provision, the
statute must be clear that a lack of one does not negate the need to file a
report.
Thank you again for the opportunity to testify, and I would be
pleased to answer any questions you may have.
END
LOAD-DATE: June 1, 2000 
