Copyright 2000 The Chronicle Publishing Co.
The San
Francisco Chronicle
MARCH 20, 2000, MONDAY, FINAL EDITION
SECTION: EDITORIAL; Pg. A23; OPEN FORUM
LENGTH: 650 words
HEADLINE:
Internet Tax Focus Of Government Greed
BYLINE: Dean F.
Andal
BODY:
EXPLOSIVE GROWTH of the Internet and
electronic commerce has created new jobs and access to a wide variety of
products, services and information. This revolution is in danger of being
stopped dead in its tracks by greedy tax officials from state and local
governments.
Under the guise of "protecting Main Street retailers,"
state and local governments are urging Congress to force
Internet sellers to collect sales taxes
wherever their customers are located. Congress is being asked to pass the
equivalent of a $4.5 billion tax increase on consumers when 70
percent of online users polled this month by the company @plan,inc., opposed
such taxes. The scheme would also force Internet sellers to keep track of taxes
in over 30,000 local tax jurisdictions and file tax returns and be audited by
states and localities they have never visited.
None of the arguments
excusing this unjustified tax grab is supported by the facts. Electronic
commerce is not a threat to local coffers. California, with the most
e-commerce-friendly tax laws in the nation, had sales tax revenue growth at an
annual rate of 5.7 percent -- an increase of one-third in less than five years.
This extraordinary increase in sales tax revenue came from traditional retailers
of goods, despite Californians' huge appetite for Internet purchasing.
There is no evidence that an "untaxed" e-commerce threatens adequate
revenues for government services. Nor does the rise of e-commerce threaten small
businesses. The Internet is the one place where small entrepreneurs can compete
on equal footing with major corporations. A good idea and nifty Web site allows
a small bookseller to actually scare Barnes & Noble.
Internet
retailers do not enjoy special "tax-free" status, they are held to the same
standard as everyone else and must collect taxes where they have a physical
presence.
The U.S. Supreme Court in the 1992 Quill case held that one
state cannot impose tax collection obligations on a business in another state
unless that seller has a substantial physical presence ("nexus") in that state.
The Quill decision recognized, as did drafters of our Constitution, that it is
sometimes necessary to limit state authority to prevent the gridlock of
interstate commerce.
From a retailer's perspective, the possibility of
gridlock is not mere speculation. There are more than 7,000 sales and use tax
rates in the United States, and about 700 changes occur in those rates every
year.
Keeping up with the appropriate tax rate (assuming you know where
the customer is located) would impose a substantial barrier to the Internet
marketplace. Americans do not believe that Internet businesses should devote
their scarce capital and management time to tax compliance, rather than growth.
We should not greet a new Internet entrepreneur with a welcome wagon of
tax-registration forms.
Instead, my proposal would apply the principle
of the Quill decision to the Internet and demand the same test, of a substantial
physical presence in a state, before imposing a sales tax.
The
definition of a physical presence would provide clarity, predictability and
uniformity. It would prevent state and local governments from trying to claim
that tan gential operations, like the maintenance of a Web site on a server in a
jurisdiction, meet the Quill test.
The U.S. Advisory Commission on
Electronic Commerce is debating whether to tax electronic commerce. Facts and
the economic best interest of America, not fear and greed, should guide the
decision of the commissioners.
Dean F. Andal is chairman of the
state Board of Equalization. He is a former state assemblyman from Stockton and
a member of the U.S. Advisory Commission on electronic commerce. The commission
will hold its final meeting today and Tuesday in Dallas, Texas. Mr. Andal's
proposal is available at: www. boe.ca. gov/members/dandal/
eleccomm/eleccomm.htm.
GRAPHIC: GRAPHIC, PAUL
LACHINE/SPECIAL TO THE CHRONICLE
LOAD-DATE: March 20,
2000 
