Copyright 2000 The Washington Post
The Washington
Post
February 20, 2000, Sunday, Final Edition
SECTION: OP-ED; Pg. B08; CLOSE TO HOME
LENGTH: 544 words
HEADLINE: On
the Internet: Gov. Gilmore's Tax Wisdom . . .
BODY:
Virginia Gov. James Gilmore deserves applause for his recent policy
statement against taxation of Internet transactions.
Most governors
worry that failure to tax Internet transactions will erode their tax bases. But
the Internet has brought about a huge increase in economic productivity,
resulting in the creation of vast new wealth and the collection of many more tax
dollars. At the end of 1998, for example, the states posted a combined surplus
of $ 36 billion. So, contrary to what some politicians say, it is unnecessary to
tax and regulate Internet access and e-transactions to maintain the "status quo"
of tax receipts.
Claims that vast amounts of Internet
transactional sales and use taxes are going
uncollected are also at odds with the facts. Five states do not even have a
sales or use tax. Nineteen states do not impose such taxes at the county or
municipal level. In addition, approximately 63 percent of all
business-to-consumer e-transactions involve services, intangible knowledge or
goods such as food, medicine or clothing that many states exempt in whole or in
part from sales or use taxes.
Moreover, in 60 percent of the e-commerce
purchases of taxable goods, the retailer would not be responsible for the
collection of sales or use taxes anyway. The Supreme Court ruled in 1991 that
sales by companies that have no physical presence in a state where the goods are
delivered are not required to collect sales taxes from customers. The purchaser
may be required to declare the out-of-state purchase and pay a use tax to his
state of residence, but most states don't enforce this law. Besides, estimates
place the uncollected sales and use taxes on e-commerce during 1998 at no more
than $ 170 million--or one-tenth of one percent of taxes collected by state and
local governments that year.
Gilmore, unlike many of his gubernatorial
counterparts, understands that the loss of such tax revenues is far outweighed
by the economic benefits of an unfettered Internet. For this reason, he endorses
no taxation of Internet access, e-commerce or the Internet generally.
Furthermore, he favors the abolition of the 3 percent federal excise tax
on consumers of telecommunications services, originally enacted in 1898 as a
"luxury tax" intended to fund the Spanish-American War. His proposal would
eliminate 2 percent of this onerous tax immediately, with the other one percent
to be collected by the federal government for three years as a transitional
measure while states simplify their tax systems. States that implement
meaningful tax reforms would receive an incentive rebate, funded by the one
percent federal excise tax collected during the transition, after which the
excise tax would be repealed. And that's not all.
Gilmore also supports
the elimination of international taxes and tariffs on e-commerce, as well as the
amendment of federal welfare guidelines to permit states to spend welfare
surpluses on the expansion of Internet access to needy families.
In
short, so far as the interrelationship between tax policy and the growth of the
Internet is concerned, Jim Gilmore not only gets it, he gets it right.
--William L. Schrader is chairman and CEO of PSINet, an Internet carrier
in Herndon.
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February 20, 2000 
