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Document 5 of 142.

June 29, 2000, Thursday

SECTION: PREPARED TESTIMONY

LENGTH: 1265 words

HEADLINE: PREPARED TESTIMONY OF SHERIFF JACK STRAIN ST. TAMMANY PARISH, LOUISIANA

BEFORE THE HOUSE COMMITTEE ON THE JUDICIARY SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

BODY:
Ladies and Gentlemen:

First, my thanks for the opportunity to speak to you today on the issue of taxing Internet commerce. This matter, and the decisions you make in coming months, will be a crucial element in the continued operations of local government, and it must no longer be placed on the back burner.

With E-commerce thriving and growing at an exponential rate, the issue of whether and when to tax Internet sales is quickly becoming a question of how to collect tax revenues that are already due.

St. Tammany Parish, Louisiana, the community I am proud to serve as sheriff is among the fastest-growing communities in the United States. With over 200,000 residents, it has the second-highest per capita income in Louisiana and is seventh overall in retail sales volume. Per capita retail sales in our parish are nearly $8,200 per year. Although statistics are not available on the percentage of local homes with Internet access, we can extrapolate from national data: Eighty percent of upper-income homes are online, and St. Tammany Parish is largely populated by families in that income bracket. This suggests that a majority of our community has Internet access.

Nationally, 80 percent of Internet shoppers are females between the ages of 16 and 50. Twenty-six percent of our population is in that demographic, equaling approximately 35,000 people. If even half of those 35,000 shop online -- for even half of their purchases -- my community could lose tax revenue on an additional half a million dollars in sales each year. At this time, this loss is not significant enough to be crippling, but with the rapid growth of e-commerce, I fear and anticipate that it could become catastrophic.

In Louisiana in 1999, an estimated $2 billion was spent on untaxed Internet and catalog sales, resulting in a loss to the state of $76 million in uncollected tax revenue. In my parish alone, local governments lost more than $2.4 million in uncollected tax revenue. The three largest cities in St. Tammany Parish lost a combined $450,000.

With 48.7 percent of American homes online -- and with that number rising daily -- the potential impact on my community does not exist in a vacuum; within the foreseeable future, local and state governments around the nation could experience substantial reductions in sales tax revenue. Several states, in fact -- Florida and Texas among them -- rely on sales taxes to provide more than 40 percent of all state revenues. Louisiana depends on a similar income from sales-tax revenue.

I am neither a proponent of taxation nor a Luddite, and I am resolved to the fact that Internet communications and commerce are changing the world. I would oppose any measures to overburden e-commerce with more than its fair share of taxation. I believe that all legitimate commerce is good for the nation and for local communities, but that such commerce cannot and should not be permitted to skirt regulation and taxation by virtue of its lack of brick-and-mortar housing or geo- political boundaries. The burden of tax collection, moreover, should not be placed solely on local businesses, inhibiting their ability to compete.

Critics of taxing e-commerce will argue that while the actual product or service is not being taxed, related events such as shipping, fuel and tariffs remain in place. It takes little computation to realize that existing revenue-generating measures will not compensate for a loss due directly to tax-free e-commerce. Additionally, taxes already in place on the shipment and delivery of products generally benefit federal and state government, but do little to directly fund local operations such as law enforcement, education and infrastructure.

But the critics are outnumbered. Indeed, a Gallup poll released early this year shows that 65 percent of online consumers expect to be taxed appropriately; I suspect that a large percentage of Internet shoppers are not even aware that their purchases are tax-free and provide no benefit to the local governments on which they, the consumers, rely.

Whatever path you choose, I suggest that the situation be addressed, and quickly. There is no crisis at the moment, but one is looming on the horizon. We should not tax e-commerce into oblivion, but we cannot allow Internet business to bankrupt local government.

If no effort is made to effectively eliminate the problem of uncollected revenue, I truly fear what the outcome may be. Taxation and technology experts with whom I have spoken raise a number of important concerns:

1. If tax-free Internet shopping continues, there may develop a "societal expectation" that this is, quite simply, the way it "should be."

2. Businesses that are complying with existing tax law will feel they have lost a competitive edge, and will begin to find ways to skirt tax payments.

3. As state and local governments lose revenue to businesses operating in cyberspace, we will be forced to raise other taxes or cut services. I needn't tell you what the potential fallout might be in terms of education, health and public safety alone.

4. Local jobs may be lost as small businesses fold to the online commercial world. This could result in greater burdens on the community, with no revenue to address the ensuing needs.

There are a number of interesting questions that will have to be addressed: Will we tax sales at the point of origin or of delivery? How will we effectively audit consumers as we currently do businesses, without becoming a fiscal "Big Brother"? Will the states be required to create conforming tax codes for simplicity of collection? Will the voters understand that this is not a new tax, but simply the proper enforcement of existing taxes?

Having reviewed the available research and data, and having consulted with informed sources in my home state, my recommendation would be as follows:

Congress should not allow the five-year moratorium to renew, but should impose -- at most -- a one-year moratorium on Internet taxation. Further, Congress should immediately implement a research and development team combining federal, state, local and business leaders. A "trusted third party" system could be established whereby private companies would provide a uniform monitoring system, collecting taxes from vendors and distributing monies to the states for disbursement to local agencies.

This solution would allow tax-collecting authorities, such as my agency, to effectively audit a business -- the third-party collector rather than mount the daunting task of monitoring individual expenditures and consumption. Further, it would give the agencies that most benefit from sales tax collection the tools to fulfill their own civic obligations.

It is our duty as public officials to ensure a level playing field for all businesses, and to give no individual or industry a competitive advantage through our action or failure to act. It is our responsibility to protect the community investments made by local small businesses. And it is incumbent on us to protect the interests of our citizens by ensuring that public service agencies are not bankrupted through the failure of online vendors to pay their fair share.

The solutions, unfortunately, will prove more difficult to implement than the technology itself. But as a local official charged with preserving, protecting and promoting the quality of life my constituents hold dear, I appeal to you to act decisively to forestall a true calamity.

I thank you again for this opportunity to speak on behalf of Louisiana's local governments.

END

LOAD-DATE: June 30, 2000

Document 5 of 142.


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