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October 9, 1999

SECTION: LOBBYING & LAW; Pg. 2908; Vol. 31, No. 41

LENGTH: 1608 words

HEADLINE: Invasion of the Number-Crunchers

BYLINE: Louis Jacobson

BODY:

The high-stakes battle over Internet taxes has become
more of a duel over data than a shouting match. The Advisory
Commission on Electronic Commerce--which Congress established
last year after approving a three-year moratorium on new Internet
taxes--won't meet again until mid-December in San Francisco, but
both opponents and supporters of Internet taxes are buttressing
their arguments with an array of facts and figures.

Today, most e-commerce is not taxed. As online business
grows, states and localities fear that a decline in retail sales
on Main Street will produce a drop in sales tax revenues.
Congress has asked the commission, which is chaired by Virginia
Gov. James S. Gilmore III, a Republican, to recommend whether
Internet sales should be taxed.

E-commerce advocates are lobbying the commission with a
flurry of economic studies. Shortly before the commission's
meeting last month in New York City, the eCommerce Coalition,
which includes America Online Inc., Cisco Systems Inc., and Wal-
Mart Stores Inc., weighed in with a study warning that small
merchants selling goods and services on the Web could spend as
much as 87 cents in administrative fees to collect $ 1 in taxes.
That's much higher than the 7 cents spent by a traditional
retailer, said the study, which was prepared by economists Robert
J. Cline and Thomas S. Neubig of Ernst & Young. Its title is
''Masters of Complexity and Bearers of Great Burden: The Sales
Tax System and Compliance Costs for Multistate Retailers.''

Joe Crosby, Ernst & Young's national director of state
tax legislative services, said that the eCommerce Coalition is
commissioning studies to answer basic questions about e-commerce.
''We began the eCommerce Coalition because we recognized that
there was not a good base of understanding on tax policy issues,
both in the general public and among policy-makers,'' Crosby
said. ''Some politicians really know about this issue, but for
the vast majority it was not on their radar screen.''

In mid-September, the Information Technology Association
of America, an 11,000-member, computer software and Internet
group in Arlington, Va., released a public opinion survey that it
had commissioned.

The ITAA survey, conducted by Fabrizio-McLaughlin and
Associates, a polling firm best known for its work for Republican
candidates, found that 44 percent of registered voters would be
less likely to vote for a candidate who favors either a state or
local sales tax on e-commerce. Approximately 33 percent of the
respondents would be less inclined to make Internet or mail-order
purchases if sales taxes were added to the price of the goods,
the survey found. ''One-third of any purchasing group is
significant,'' said ITAA spokeswoman Tinabeth Burton.

Another survey, with less-traditional methodology, was
released on Sept. 16 by the Association for Interactive Media, a
Washington trade group for Internet companies that has been among
the leading opponents of Internet taxation. The AIM survey, which
included comments from 7,000 online buyers, found that nearly
half of the respondents would not have made their most recent
purchase if the transaction had included a sales tax. AIM's poll
was conducted by bizrate.com, a Los Angeles-based company that
collects consumer comments from 1,700 e-commerce Web sites.

Yet another survey about attitudes toward e-commerce
taxation was released in mid-September, but its authors
emphasized that it was not paid for by any group with a stake in
the commission's deliberations. The poll questioned 1,000
Internet users by telephone, and found that 67 percent of
Democrats and 80 percent of Republicans oppose Internet taxes.

This poll was the first in an ongoing series of surveys
by a partnership between @plan, a Stamford, Conn.-based Internet
market-research firm, and the Princeton, N.J.-based Gallup
Organization. Mark K. Wright, @plan's chairman and CEO, said the
poll results suggest that Internet taxation ''could develop
traction as a national political issue.'' But in an interview,
Wright said it was ''coincidental'' that the study was released
around the time of the commission's New York meeting.

In the meantime, a collection of conservative-leaning
Washington think tanks and activist groups--including Americans
for Tax Reform (which is headed by commission member Grover G.
Norquist), the libertarian Cato Institute, Citizens for a Sound
Economy, the Competitive Enterprise Institute, and the Heritage
Foundation--is teaming up to provide commissioners with facts and
figures about Internet commerce. Aaron Lilly, a technology and
communications policy analyst at the Citizens for a Sound Economy
Foundation, said that representatives from several groups met
recently to discuss the best way to present the commission with
data that demonstrate the negative impact of Internet taxes.

Other groups said they might also hire economic
consultants on e-commerce taxation. ''We're looking at our
options to help us and our members understand the potential
impact'' of e-commerce, said Pamela A. Rucker, the vice president
for public relations at the National Retail Federation, whose
members have both traditional ''bricks-and-mortar'' businesses
and e-commerce interests. ''It's so new that nobody really knows
the impact of it.''

The Internet Tax Fairness Coalition is also trying to
retain additional outside help, said spokesman Steve Bowers. The
group is made up of about a dozen trade associations and
companies, including four corporations whose executives sit on
the commission itself.

The push to keep the Internet free of taxation gained
steam in late September when Sen. John McCain of Arizona, a GOP
presidential candidate, introduced legislation that would make
the three-year moratorium permanent. Sen. Ron Wyden, D-Ore., and
Rep. Christopher Cox, R-Calif., have sponsored legislation that
would direct the Clinton Administration to push for broadening
the U.S. moratorium on Internet taxation to global e-commerce.

Meanwhile, the Progress & Freedom Foundation, a
Washington think tank that focuses on technology and public
policy, has concentrated its energy on the e-commerce
commission's most overlooked portfolio: taxes on telephone
service. Foundation President Jeffrey A. Eisenach, who testified
at the advisory commission's New York meeting, said that his
group is studying how telecommunications taxes pose an economic
barrier to families seeking to obtain the next generation of
high-speed Internet access, known as ''broadband'' service.

''In 1998, there was $ 9 billion of e-commerce, and if you
assume a typical 5 percent sales tax, we're talking (about) a $450 million problem,'' Eisenach said. ''But the communications
business is $ 300 billion, and the telecommunications tax rate is
at least 15 percent, which makes it a $ 45 billion issue. That's a
tax rate that's absolutely unsustainable.''

Of course, state and local government groups in
Washington emphasize that their opponents paid for the studies
that supported their anti-tax arguments. Moreover, these
officials questioned the studies' methodology. ''The question
they ask is, 'Do you want to pay taxes?' '' said Neal Osten, the
senior committee director for commerce and communications at the
National Conference of State Legislatures. ''If people had said
they did want to pay taxes, that would have been shocking,'' he
said. The studies failed to ask people what taxes to increase or
what services to curtail given the drop in sales tax revenues
caused by e-commerce, Osten added.

Osten's group and its allies have been relying on their
own studies to bolster their arguments. One report was prepared
by the tax department of Utah, whose Republican governor, Mike
Leavitt, is a key proponent of extending taxation to e-commerce.
Using data compiled by Internet experts and several federal and
academic sources, the study pinpoints how much each state will
have to raise its sales taxes to compensate for growth in online
commerce.

A new study by Forrester Research Inc., a Cambridge,
Mass., technology consulting firm, shows just how dramatic the
surge in e-commerce could be. The Sept. 28 report predicts that
online sales will surge from $ 20.2 billion in 1999 to more than $184 billion in 2004.

Meanwhile, the National Association of Counties, the U.S.
Conference of Mayors, the National League of Cities, and the
Government Finance Officers Association are preparing a study of
the impact of the Internet's tax-free status on local tax
revenues, said Ralph Tabor, the associate legislative director
for the counties' group.

Finally, an independent paper published by the liberal
Progressive Policy Institute is making waves. The study by PPI
scholars Robert D. Atkinson and Randolph Court recommends using
existing software to simplify the difficulties of taxing online
transactions. The proposal has won praise from the National
Governors' Association, but it worries anti-tax forces. The
latter contend that such a technological fix won't solve all the
administrative difficulties associated with state taxation. One
anti-tax advocate said that his group is planning to attack the
PPI proposal with, yes, yet another study.

LOAD-DATE: October 11, 1999

Document 16 of 27.


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