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April 29, 2000

SECTION: LOBBYING; Pg. 1364; Vol. 32, No. 18

LENGTH: 1834 words

HEADLINE: Main Street Marshals Its Troops

BYLINE: Louis Jacobson

BODY:

The Advisory Commission on Electronic Commerce, a panel appointed
by Congress and the White House last year, issued its final
report in March on whether Internet commerce should be taxed. But
for lobbyists roaming the halls of Congress, the issue is far
from settled.

Lobbyists for "brick-and-mortar" retail stores, as well
as for state and local officials, blasted the report as soon as
the commission approved it on a 10-8 vote, well short of the two-
thirds majority envisioned by Congress. Retail advocates argued
that the panel's proposal to extend the existing ban on Internet
sales taxes for five years would perpetuate an "unlevel" playing
field that gives firms doing business over the Internet an
advantage over companies selling goods in brick-and-mortar
stores. States and localities complained that the tilt favoring
Internet commerce could harm state and local treasuries, and
force the curtailment of public services.

In mid-April, four committees in the House and Senate
began to review the commission's findings. Even though a number
of lawmakers, including key members of the Republican leadership,
lean toward the anti-tax position, critics of the commission's
plan won a tactical victory when they helped stall efforts by
Sen. John McCain, R-Ariz., to turn many of the panel's
recommendations into law.

"We think we will be able to wage a successful effort to
keep Congress from enacting bad legislation," said Neal Osten,
the National Conference of State Legislatures' director of
commerce and communications. "We're on fairer footing. The
commission right from the beginning had its agenda, and they
stayed to it. Now that the commission is out of the way, we can
work with Congress instead."

For months, Internet and high-tech advocates seemed
invincible in the e-tax fight. Few members of Congress wanted to
take on a sector widely credited with leading the nation's
economic expansion. States and localities, lacking the deep
pockets enjoyed by business interests, waged a lonely battle But
the battle became more competitive a few months ago, when two
business sectors-brick-and-mortar retailers and real estate
interests-joined forces with the government groups.

The business groups' decision "was a shot in the arm,"
said the NCSL's Osten. "It added a whole new focus and attracted
congressional attention. You know the way the game is played-we
can't make campaign contributions, so we don't necessarily get
the attention."

The broadest umbrella group opposing tax-free status for
e-commerce is the e-Fairness Coalition. It includes the American
Booksellers Association, the International Council of Shopping
Centers, the International Mass Retail Association, the National
Association of Real Estate Investment Trusts, the National
Association of Realtors, the North American Retail Dealers
Association, the Real Estate Roundtable, and several state
retailers' associations. It also includes such major retail
corporations as Wal-Mart, Target, and Circuit City.

The coalition has hired a full-time executive director in
Washington, and many of the member trade groups have lent
staffers and volunteers to the effort. Washington lobbyists for
several big retailers-including Home Depot, J.C. Penney,
RadioShack, Sears, and Wal-Mart-have also weighed in.

"We have no quarrel with extending the moratorium as
such, but there is a year and a half left before it expires, so
there's no need to rush it the day after the report is issued,
especially when it didn't even get the two-thirds majority," said
Lisa Gilbertson, the director of tax and financial issues for the
International Mass Retail Association, a group of national chain
retailers that is taking a leading role inside the e-Fairness
Coalition.

A few months after the e-Fairness Coalition was launched,
the National Retail Federation-the most diverse group
representing the retail sector-also jumped into the fray. Because
the federation includes some Internet-only members (such as the
online auction site eBay), as well as companies that are moving
into e-commerce, federation officials had for months delayed a
decision on whether to join the tax debate. But at a January
board meeting, the group finally decided to side with proponents
of Internet taxation.

"We believe that Congress should not pick winners and
losers," explained Sarah Whitaker, the director of government
relations for the National Retail Federation. "We have state
retail associations who can contact Main Street retailers in
every state, so many members are going to be hearing from
retailers on this issue."

For their part, the so-called Big Seven advocates for
states and localities-the Council of State Governments, the
International City/County Management Association, the National
Association of Counties, the National Conference of State
Legislatures, the National Governors' Association, the National
League of Cities, and the U.S. Conference of Mayors-have held
tough on e-taxes.

On May 4, the National Conference of State Legislatures
will hold a "lobby day" in Washington featuring approximately 200
legislators from around the country. Two state legislators who
have helped lead the group's grass-roots efforts-Democratic Rep.
Matt Kisber of Tennessee and Republican Sen. Steve Rauschenberger
of Illinois-are lining up meetings with House members and
Senators, Osten said. Sen. Kay Bailey Hutchison, R-Texas, is
scheduled to address the legislators at a rally. (Texas officials
are particularly concerned about the impact of declining sales
tax revenues, because the state has no income tax.)

And more opposition could be developing. The Center on
Budget and Policy Priorities, a liberal group that has released
studies warning of the impact of Internet sales on local and
state tax bases, co-sponsored a briefing on April 13 in
Washington for public-employee unions and human-resources
advocacy groups. Michael Mazerov, a senior policy analyst at the
center, said that approximately 20 organizations were represented
at the briefing, including two co-sponsors, the American
Federation of State, County and Municipal Employees and OMB
Watch, another liberal advocacy group.

In mid-April, pressure by retail, real estate, and
governmental groups helped derail McCain's initial legislative
forays. The Senate Commerce, Science, and Transportation
Committee, which McCain chairs, was slated to hear the advisory
panel's chairman, Republican Gov. James S. Gilmore III of
Virginia, present the commission's final report, after which the
McCain bill was scheduled for markup. McCain's bill extended the
current moratorium on levies against Internet access companies
such as America Online and prohibited taxation of the amount, or
"bandwidth," of data sent by users over the Internet. Thanks in
part to the critics' lobbying efforts, committee members
prevailed upon McCain to postpone the markup.

The retail, real estate, and governmental groups have
been working closely with several Senators, including Byron
Dorgan, D-N.D., to craft a more acceptable proposal. Early
discussions focused on creating incentives for states to simplify
their sales tax regimes in exchange for permission to require
out-of-state businesses to collect sales taxes. The architects of
the proposal, which is still being finalized, also received input
from Sens. John Breaux, D-La., Michael Enzi, R-Wyo., Slade
Gorton, R-Wash., and Bob Graham, D-Fla. One advocate estimated
that 20 states are likely to take advantage of the new system,
eight or nine would opt out, and the rest would be "up for
grabs."

Anti-tax partisans aren't sure how effective the newly
bulked-up coalition will be. "It's hard to say," said Mark
Nebergall, the president of the Software Finance and Tax
Executives Council, a trade group formed last October that sides
with Internet companies on the tax issue. "It seems to have
become more of a partisan political issue. I see some evidence
that the e-Fairness Coalition and the Big Seven have the ear of
Democrats, and the people supporting the (advisory commission's)
proposal have the ear of some Republicans."

A technology lobbyist said that although the governmental
groups have proved to be persistent adversaries, the retailers
have "have not really had much impact on the debate. I just
haven't heard much from the retail folks."

All sides, however, will still have ample opportunity to
influence Congress. The Senate Finance Committee is considering
hearings, as are the House Judiciary Committee and the House
Commerce Committee. In addition, the Republican leadership has
promised to put the issue near the top of its legislative agenda.

Lobbyists for retailers and the governmental groups
predict that the Senate Finance and House Judiciary committees
will be amenable to their concerns. The groups say they will
oppose any bill that grants Internet businesses permanent freedom
from access taxes and bandwidth taxes without addressing the
differing treatment of online and brick-and-mortar sales.

To be sure, several of the groups have differences to
work out among themselves. Brick-and-mortar retailers would be
happy to see sales taxes lifted for both themselves and Internet
retailers-but if they were, states and localities might raise
property taxes, and then real estate owners would feel their
pockets being drained.

That's one reason the National Retail Federation intends
to keep its own lobbying apparatus active, officials said. An as-
yet-unnamed coalition consisting only of retail groups is
currently in the works. The National Association of Real Estate
Investment Trusts is also maintaining an industry-only task force
representing the retailer portion of the real estate business.

Subtle splits might eventually cause tension between
members of the governmental coalition, as well. For instance,
state officials might side with retail and real estate lobbyists
in arguing that sales tax simplification-a precursor to taxing
online sales-should include the elimination of city and county
taxes. City and county officials, by contrast, worry that their
fiscal needs may go unmet if separate levies are abolished.

Despite these looming issues, Gilbertson of the mass
retailers' group promises "a big grass-roots push" in the coming
months. "We worked really hard in the Senate and educated a lot
of people about the implications for their state," she said. "The
House is a bigger body to tackle, so we'll be bringing in help
from all across the country."

LOAD-DATE: May 3, 2000

Document 7 of 27.


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