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Document 13 of 27.

November 13, 1999

SECTION: TECHNOLOGY; Pg. 3307; Vol. 31, No. 46

LENGTH: 635 words

HEADLINE: To Tax or Not to Tax

BYLINE: Neil Munro

BODY:

The technology of the Internet is amazingly complex--but
it's a breeze compared with the politics of the Internet.

Consider the inner workings of the 19-member Advisory
Commission on Electronic Commerce. Formed in 1998, the panel is
supposed to recommend by April 2000 how states can levy sales
taxes on out-of-state Internet transactions. The panel, whose
rules require 13 votes for any recommendation, has already split
into at least two factions.

An anti-tax faction led by Grover G. Norquist, the
president of Americans for Tax Reform, is firmly backed by
perhaps five other members, plus the chairman, Virginia Gov.
James S. Gilmore III. Gilmore argues that cyberspace should be
kept tax-free to ensure continued growth for such companies as
America Online, based in Dulles, Va. This faction includes at
least two executives, Bob Pittman, the president of AOL, and
Richard D. Parsons, the president of Time-Warner Inc.

The anti-tax faction is opposed by a pro-tax group of six
state and local members, led by Gov. Michael O. Leavitt of Utah.
They argue that a tax exemption for Internet sellers would drive
Main Street out of business and eventually cut a multibillion-
dollar hole in annual state and local tax revenues. This group
includes Theodore Waitt, the chairman of computer-maker Gateway,
whose company operates numerous stores in many states and so
already collects sales taxes when it sells computers via the
Internet.

The remainder of the panel, about six strong and
including three government officials appointed by President
Clinton, are the swing voters. The industry executives in this
undecided camp include David Pottruck, the president of Charles
Schwab and Co.; John W. Sidgmore, vice chairman of MCI WorldCom;
and C. Michael Armstrong, the chairman of AT&T Corp. None of
their businesses would be hit directly by Internet taxes because
they sell untaxable services, not taxable goods such as
computers.

The panel is also deeply shaped by outside forces,
notably the strong anti-tax views held by activists and
legislators in the Republican Party. The anti-tax stance could
render a pro-tax recommendation irrelevant because the Supreme
Court ruled in 1992 that the states need federal permission to
compel out-of-state Internet sellers to collect sales taxes from
in-state buyers.

Significantly, outsiders who might favor an Internet
tax--such as Democrats in Congress, local and state legislators,
small retailers, Main Street businesses, or government union
workers--have not been active. One exception: the International
Mass Market Retail Association, which includes many large chains
such as Wal-Mart Stores, recently urged the collection of
Internet sales taxes.

All of this suggests that the likely fate of the tax
commission will be oblivion. Such a fate will leave the pro-tax
group with two hopes: Either a critical mass of high-tech
companies decides it needs retail outlets in most states, which
would allow collection of sales taxes, or the Supreme Court voids
its 1992 decision once states adopt simplified tax systems that
sharply reduce the compliance burden faced by out-of-state
companies.

If those options fail, then a three-year moratorium on
Internet taxes will live on for a long time--just like the 1872
Mining Act, which was originally intended to foster development
in the Western territories, where entrepreneurs found themselves
and their capital threatened by hostile Indians. Or as James
Cicconi, general counsel for AT&T, puts it, the commission may
remind everyone that ''there's nothing so permanent in Washington
as a temporary moratorium.''

LOAD-DATE: November 16, 1999

Document 13 of 27.


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