Washington Report

Keeping Members Informed About Regulatory Issues

Contents
March 2000

CATALOG ISSUES UPDATE

ACEC PROPOSALS INCLUDE TAX REDUCTIONS

The fourth and final scheduled meeting of the Advisory Commission on Electronic Commerce (ACEC) was held on March 20 and 21, 2000 in Dallas, Texas. During this meeting, the Commission voted to hold another meeting by telephone if a compromise that would muster a two-thirds majority on the remaining outstanding issues can be negotiated. The Commissioners felt that they were very close to completing a deal and simply had run out of time; therefore, they left the door open for one la

The two-day meeting was filled with drama and intensive back-room negotiations that sought to produce a recommendation to Congress that two-thirds of the Commissioners could support. In the end that effort failed. After considering a couple of resolutions regarding international consensus on taxing electronic commerce, the Commission took up the proposal prepared by the six business executives on the Commission (Armstrong, AT&T; Parsons, Time Warner; Pittman, AOL; Pottruck, Charles Schwab; Sidgmore, MCI; and Waitt, Gateway).

The proposal recommends that Congress enact legislation that:

(1) (a) for a period of five years, extends the current moratorium barring multiple and discriminatory taxation of electronic commerce and prohibits taxation of sales of digitized goods and products and their non-digitized counterparts.

(1) (b) makes permanent the current moratorium on any transaction taxes on the sales of Internet access, including taxes that were grandfathered under the Internet Tax Freedom Act.

(2) clarifies that the following factors would not, in and of themselves, establish a seller's physical presence in a state for the purposes of determining whether a seller has sufficient nexus with that state to impose collection obligations:

(a) a seller's use of an Internet service provider that has physical presence in a state;
(b) the placement of a seller's digital data on a server located in a particular state;
(c) a seller's use of telecommunications services provided by a telecommunications provider that has physical presence in that state;
(d) a seller's ownership of intangible property that is used or is present in that state,
(e) the presence of a seller's customer in a state
(f) a seller's affiliation with another taxpayer that has physical presence in that state;
(g) the performance of repair or warranty services with respect to property sold by a seller that does not otherwise have physical presence in that state;
(h) a contractual relationship between a seller and another party located within that state that permits goods or products purchased through the seller's website or catalogue to be returned to the other party's physical location within that state; and
(i) the advertisement of a sellers business location, telephone number and website address.

(3) clarifies that, in determining whether a seller has sufficient nexus with a state to be required to meet business activity and income tax reporting and payment obligations of that state, the following factors would not be taken into account: (a) all of the factors listed in (2)(a) through (i) above, and (b) a seller's sales and use tax registration with that state and/or a seller's collection and remittance of use taxes for that state.

(4) encourages state and local governments to work with and through the National Conference of Commissioners on Uniform State Laws (NCCUSL) in drafting a Uniform Sales and Use Tax Act within three years after the expiration of the current ITFA moratorium (i.e., October 21, 2004) that would simplify state and local sales and use taxation policies so as to create and maintain parity of collection costs (net of vendor discounts) between remote sellers and comparable single-jurisdiction vendors that do not offer remote sales, including providing the following:

(a) uniform tax base definitions
(b) uniform vendor discount
(c) uniform and simple sourcing rules
(d) one sales and use tax rate per state and uniform limitations on state rate changes
(e) uniform audit procedures
(f) uniform tax returns/forms
(g) uniform electronic filing and remittance methods
(h) uniform exemption administration rules (including a database of all exempt entities to determine exemption status)
(i) a methodology for approving software that sellers may rely on to determine state sales tax rates
(j) a methodology for maintaining revenue neutrality in overall sales and use tax collections with each state (such as reducing the statewide sales tax rate) to account for any increased revenues collected (on a voluntary basis or otherwise) from remote sales.

(5) (a) establishes a new Advisory Commission responsible for oversight of the progress of NCCUSL's efforts to create a Uniform Sales and Use Tax Act.

(5) (b) within six (6) months after the completion of NCCUSL's work, the commission shall transmit to Congress for its consideration a report containing the following:

(i) findings, for the period from 1999 through 2004, regarding the growth of electronic commerce, the impact of electronic commerce on traditional retailers, the impact of remote sales on state tax revenues,

(ii) an assessment of whether the Uniform Sales and Use Tax Act meets the standards listed in (4)(a) through (j) above;

(iii) an assessment of whether the adoption of the Uniform Sales and Use Tax Act would result in equal tax collection burdens (net of vendor discounts) for remote sellers and comparable sing-jurisdiction vendors

(iv) an assessment of whether requiring all remote sellers to collect and remit sales and use taxes to those states that adopt the Uniform Sales and Use Tax Act would impose any unreasonable burden on interstate commerce or would otherwise adversely impact economic growth and activity through remote electronic channels;

(v) a recommendation as to whether state that adopt the Uniform Sales and Use Tax Act should be permitted to collect sales and use taxes on all remote sales; and

(vi) any other recommendations as required to address the findings of the Commission's report.

(vii) eliminate the 3% federal excise tax on communications services.

The possibility that the negotiations will result in a 2/3-majority recommendation to Congress is slim. Eleven commissioners voted for the business caucus proposal, and several in this majority do not want to make any further concessions. The other eight commissioners are very opposed to the nexus clarifications (see #2 above), and a compromise is unlikely.

Our opponents have already begun to characterize the Commission as "deadlocked" and a failure. This is how they will spin their message emphasizing "tax fairness" on Capitol Hill. The Wal-Mart/Circuit City backed E-Fairness Coalition and the NRF will be quick to criticize the Commission's work. We will need to emphasize the many successes of the Commission.

First, a clear majority is going to make very substantial proposals to Congress that address outdated and regressive taxes. Secondly, the Quill protections have survived and quite a few more policy makers understand why the Court ruled the way that it did. Third, almost everyone agrees on a point that has been highlighted throughout the debate-the current sales and use tax system is outdated, complex, and burdensome and needs to be simplified dramatically. This has to be addressed before we think about who has to collect from whom. The business caucus plan outlines simplification criteria, provides a timetable, and suggests a vehicle and process for simplification. It is up to the states to address this problem, and they know it.

back to contents

  © Direct Marketing Association | Privacy Statement | Disclaimer | Current Issue