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Document 39 of 142.

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May 17, 2000, Wednesday

SECTION: PREPARED TESTIMONY

LENGTH: 1224 words

HEADLINE: PREPARED TESTIMONY OF THE HONORABLE RONALD KIRK MAYOR, CITY OF DALLAS

BEFORE THE HOUSE JUDICIARY COMMITTEE SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

BODY:
Mr. Chairman, and honorable members of the House Judiciary Subcommittee on Commercial and Administrative Law, it is an honor and pleasure to be able to provide testimony today regarding the Internet Tax Reform and Reduction Act of 2000 (HR 4267), and more generally on the impact of electronic commerce on state and local governments.

As you know, I had the privilege of representing local government interests as one of Congressman Gephardt's appointees to the Advisory Commission on Electronic Commerce (ACEC). Over the course of 18 months, my fellow Commissioners and I explored the uncharted territory of the relevance and application of sales tax in the New Economy of the Digital Age. The Commission was unified in its support for addressing several important issues posed by the growth of electronic commerce, most notably that we must undertake a serious effort to close the digital divide, to protect the privacy of merchants and consumers, and that a standstill on international taxes and tariffs should be maintained. However, there was significant divergence between the interests of state and local government appointees and those of industry on the issue of whether or not state sovereignty and local autonomy should be preempted.

For 45 states, as well as the District of Columbia and thousands of municipalities, the sales and use tax represents a stable and secure source of revenue to carry out essential, and even critical, public services. Public safety, education, social services and infrastructure improvement and maintenance all fall within this category. For states such as my own, Texas, the sales and use tax is especially important, as we do not levy an income tax. In fact, 60% of our state revenues are comprised of the sales tax. You can imagine that any reduction in these revenues would have serious consequences on our ability to provide the aforementioned public services.

The divergence of opinion between industry Commissioners on the ACEC, who held the majority position, and government Commissioners, who held the minority position, resulted in a Final Report short on recommendations. The Commission failed to reach the mandated 2/3rds majority on many points of discussion. However, over the objections of the minority, several policy proposals were sent to Congress for consideration with only a simple majority approval. Most of those policy proposals now make up the bulk of HR 4267.

The vast majority of state and local leaders are opposed to this legislation for one fundamental reason - it will hinder our ability to carry out our public duties by preempting our historical right to determine tax bases and rates. Our concerns have been articulated in detail by the 7 major public interest groups.

As I stated in my comments to the Final Report of the ACEC, my personal view of the Internet is that human beings have finally created a way to amass our collective knowledge and make that knowledge available to anyone, anywhere, anytime. The Internet is an amazing tool for sharing information and ideas. In less than a decade, the Internet has changed the way we communicate and interact within our relationships, be they familial, employee-employer, citizen- government, or consumer-seller. I believe that as we continue to develop the Internet, it has the potential to improve our standard of living, and should be encouraged to flourish.

Therefore, I do not espouse the position that the Internet is a vast new resource to be tapped for tax dollars. This is not what we are attempting to do. We are simply calling for equal treatment of similar products, whether they be purchased online, or from traditional brick and mortar retailers. In fact, even without any congressional action, the complement to the sales tax, the use tax, is legally due on goods and services purchased over the Internet. It is the collection mechanism that needs to be fixed.

Certainly the sales and use tax system has not kept pace with technological advances in the way consumers purchase goods and services. State and local leaders are aware that the system must undergo a complete overhaul to make the collection system simple, equitable and fair. in fact, the minority position on the Commission was centered in addressing the outdated nature of the system. The majority agreed with this position, but with one completely unacceptable caveat. State and local governments are to be held back during the system overhaul by a prohibition on the exercise of state sovereignty and local autonomy to determine tax bases and rates, which is exacerbated by a series of what has come to be known as nexus carve-outs, and which are enumerated in HR 4267.

What state and local leaders are asking for is an opportunity to work toward a simplification of the sales and use tax system without restrictions being placed on our ability to set the tax base and tax rates. Several efforts are already underway, most notably headed by the Multistate Tax Commission, to develop a streamlined system that simplifies rules and procedures for collecting and remitting sales and use tax without creating an undue burden on retailers. We feel this can be done without an extension of the current moratorium. If an extension is inevitable, we are asking that it is no longer than 2 years, and is directly tied to congressional authorization for states that implement the streamlined system to collect tax on remote sales. Under no circumstances can we support the aforementioned nexus carve- outs.

These nexus carve-outs serve only one purpose - to provide a special class of businesses with a get-out-of-sales-tax-free card. We should not establish policies that cause the Internet to be used as a tool that profits certain businesses at the expense of the public welfare. That is precisely what the ACEC Final Report proposes, and HR 4267 would codify. State and local government revenues will be impacted by the losses that stem from the proposed tax breaks, but ultimately it is the small business and individual taxpayer that will suffer the results.

Small Main Street retailers are severely hampered by the absence of a level playing field vis-a-vis etailers. Under the Final Report proposals, local bricks and mortar establishments are required to collect and remit sales taxes while their on-line counterparts can avoid doing so. In effect, this margin of cost is a huge subsidy to online retailers, which traditional retailers cannot receive.

Individual taxpayers will be responsible for taking up the slack for the billions of dollars in proposed tax breaks. In addition to a shift in the tax burden from industry to individual, these same taxpayers will be receiving less in the way of public services because state and local government revenues that pay for education, public safety, and local infrastructure will diminish.

Let us be clear. The proposed legislation is less of a "Tax Reduction Act" than it is a "Tax Shifting Act". Please oppose this affront to our federal system of governance, to this unfunded mandate on state and local governments, and to this shift of the tax burden onto our local Main Street merchants and individual taxpayers.

Thank you for the opportunity to present my views.

Ronald Kirk Mayor, City of Dallas and Commissioner, Advisory Commission on Electronic Commerce

END

LOAD-DATE: May 18, 2000

Document 39 of 142.


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