NCSL Executive Committee Task Force on State and Local Taxation of
Telecommunications and Electronic Commerce
Minutes from the Seventh Meeting, in Denver, Colorado
Denver, CO
April 1, 2000
Contents:
Members Attending:
Representative Matt Kisber, TN, Co-Chair
Senator Larry Borst,
IN
Senator Joanne Emmons, MI
Representative Dave Ennis,
DE
Senator Dick Finan, OH
Assemblyman David Goldwater, NV
Senator Bob Jauch, WI
Representative Philip Travis,
MA
Representative John Hines, WY (new member)
Legislative Staff:
Dave Crotts, NC Fiscal Research Division
NCSL Staff:
William Pound, Executive Director
Scott Mackey, Chief
Economist
Gerri Madrid, Committee Director
Neal Osten, Senior
Committee Director
Graham Williams, Senior Staff Assistant
Saturday April 1, 2000
Rep. Kisber called the meeting to order and welcomed the Task Force to
Denver. He explained his co-chair, Sen. Steve Rauschenberger, was
unavoidably detained in session in Illinois. Rep. Kisber asked the group
to introduce themselves and the meeting commenced. Rep. Kisber asked the
staff to give brief updates on what had been going on with the Advisory
Commission, in Congress and in the states.
Scott Mackey explained what had transpired at the final Advisory
Commission on Electronic Commerce in Dallas. Mr. Mackey recounted that
Governor Leavitt, who had taken the lead for the state and local group,
was willing to compromise and in fact looked for a deal around which to
build consensus. However, Governor Gilmore, the Chairman of the
Commission, had the tax-free zone faction and the business caucus firmly
allied with him so no 2/3 recommendations could be reached. Mr. Mackey
asserted that this might have been the best possible outcome for the state
and local groups because any compromise would have required giving away
too much. Further a report from a slim majority would be easier to fight
in Congress. Mr. Mackey went on to say that the greed of the business
caucus may have shifted public support to the state and locals as the
business caucus proposal was increasingly being viewed as a group of
special interest tax giveaways.
Neal Osten presented a short review of possible congressional action on
Internet taxes. Mr. Osten mentioned that Governor Gilmore would likely
testify at hearings of the House Commerce Committee on April
5th and before the Senate Commerce Committee April
6th. The hearings would generate a lot of press, and any
attempts to call the Commission's report into question might be muted by a
letter sent to Gov. Gilmore from Sen. Lott and Speaker Hastert saying that
a majority recommendation would satisfy them. Mr. Osten explained that it
was possible Congress would try to extend the current moratorium. He
remarked that there were several different vehicles available in Congress
to do so. Sen. McCain had introduced a new bill, which is a simple
five-year extension of the current moratorium, as well as authored a
separate permanent extension including sales taxes. Sen. Wyden and Rep.
Cox had also introduced legislation to permanently extend the current
moratorium.
Mr. Osten detailed plans for an NCSL Internet Tax Lobby Day on May
4th, to kick off the Spring AFI Meeting in Washington, DC.
According to Mr. Osten, the Lobby Day will include a lunch update on how
the issue is unfolding on its various fronts from the Co-Chairs of the
Task Force, Rep. Kisber and Sen. Rauschenberger. Then the group will then
walk to the Hart Senate Office Building for a rally and briefing with Sen.
Bob Graham (D-FL) and Sen. Kay Bailey Hutchison (R-TX). After the rally
the group will split up to meet with their individual congressional
delegations. Mr. Osten suggested the message should be that Congress
should not rush to judgment on this issue, especially as there are 17 more
months left under the current moratorium.
Sen. Finan asked if the real danger with McCain's newer bill was the
possibility of amendments on the floor. Mr. Osten and Mr. Mackey agreed
that the simple extension of the moratorium would be a perfect vehicle for
other more onerous provisions. Rep. Ennis said that he would be happy to
contact Sen. Roth (R-DE) and ask him to hold a hearing on the same day as
the NCSL Lobby Day. He felt that even though Delaware does not have a
sales tax, Sen. Roth might be a valuable ally if the issue was framed in
the context of states' rights.
The discussion shifted to materials that might help Task Force members
lobby in their own states and in Washington. Rep. Kisber asked if it was
possible for NCSL staff to prepare a one-page list of taking points
specific to the Commission Report, specifically pointing to the loopholes
added to the business caucus proposal. He felt that would be a valuable
tool to have when discussing the Commission and legislation with his
delegation. Assemblyman Goldwater and Sen. Jauch each reiterated the need
for continued economic studies to produce hard data. Assemblyman Goldwater
asked if NCSL had done any work specifically on studies that took a more
macro-economic approach the state revenue losses in the context of an
expanding economy. He explained he thought such a study if not already
underway would be helpful.
Graham Williams then gave a short update on action in the states to
enable multi-state discussions on the "Streamlined Sales Tax System." To
that point 26 states had either taken action legislatively or though
executive action, or were considering action. Mr. Williams referred the
Task Force to a chart in their binders tracking all action in the states.
With ten states already committed and 6-10 more possible, the results had
already exceeded the hope that 6-8 total states would participate in the
discussions.
Streamlined Sales Tax Project
Charles Collins and Dianne Hardt, Co-Chairs of the Streamlined Sales
Tax Project, then gave their report to the Task Force on their meeting
held in Denver March 30-31. They explained their mission was to design,
test, and implement a system that radically simplifies sales and use
taxes. Mr. Collins and Mrs. Hardt explained the membership consisted of
two groups, "Participating States" and "Observing States." Mr. Collins
told the Task Force that there were ten "Participating States," states who
had already committed to the process through legislation and/or executive
order. He went on to point out that there were 19 "Observing States" who
agreed with the mission but either had yet to, or could not officially
commit to working to fulfill the project. Mrs. Hardt explained the
steering committee had been elected and was comprised of nine
representatives from member states. In the Denver meeting, which was the
second such meeting, the group split up into five work groups:
- Tax base Uniformity and Exemption Administration
- Technology, Audit and Privacy Issues
- Tax Rate and Registration, Returns and Other Remittances
- Sourcing and Other Simplification Issues
- Paying for the System
The Co-Chairs of the Streamlined Project continued that they were still
working on a timeline, and hoped to have a pilot project up and running by
late 2000. According to the Mr. Collins and Mrs. Hardt, the next meeting
of the Streamlined Project will take place April 26-27 in St. Louis, and
the following meeting will likely take place May 24-25 in Dallas. The
presenters also informed the committee that the progress of the "Project"
could soon be followed on the web at http://www.streamlinedsalestax.org/.
The Task Force had several questions for the representatives of the
State Tax Departments. Sen. Finan noted the timeline for constructing a
system was very ambitious, but applauded the administrators for working so
diligently. Sen. Finan cautioned Mr. Collins and Mrs. Hardt not to "let
the perfect be the enemy of the good" since it was so important that the
tight timeline be kept. Mr. Collins thanked the Task Force for its support
and replied that his group was working really hard to meet the timetable.
Rep. Travis noted the change in emphasis away from the TTP to a technology
solution. He asked if this shift meant that the structure of the system
would be different? Mrs. Hardt replied that there were several options
still on the table. The first would be the old TTP structure with a number
of certified third parties collecting and remitting the taxes. The second
option would be a certification process for systems currently in use by
large retailers. Lastly there might be a combination of the two.
Rep. Travis followed up asking if the members of the Streamlined
Project were confident that the technology could work. Mr. Collins said
that the group was confident that technology could facilitate the process
and the group was planning to issue and RFI (Request for Information) from
the various technology companies in May or June.
Sen. Jauch commented that he was impressed with the Streamlined Project
members' work and effort and asserted that all the hard work would pay off
as the results would lead to a domino effect of interested states. Maureen
Reihl, a representative of the National Retail Federation, cautioned that
the process should not be perceived as closed, as that might impair the
credibility of the final result. Mr. Collins and Mrs. Hardt, agreed and
noted that at each of the meetings there has been a morning session
scheduled solely for public comments. Further the project would soon be
inviting in representatives from various industries to get their
perspectives. Rep. Kisber thanked the group again for their dedication and
their leadership.
Retailers Perspective
David Bullington, Executive Vice-President in Charge of Taxes for
Wal-Mart Stores, addressed the Task Force on the retailers' perspective on
the Internet tax issue, and how best to advance their common positions
with the state and local groups. Mr. Bullington started out by
acknowledging that the retail community was "asleep at the switch"
throughout the debate on the Internet Tax Freedom Act two years ago. He
offered several realizations that he has come away with from his
involvement with the issue over the past year. First, keeping the various
groups with common interests on the same page had been very difficult.
Second, he found the state and local groups had been equally stubborn on
certain issues as the anti-tax groups. Third, he said that it was clear
that the Direct Marketers Association understood the pricing advantage
they enjoy and are fighting to protect it. Finally, he noted that in his
experience, the groups advocating a level playing field were being
outspent by their opponents by as much as 10-1.
Mr. Bullington applauded the Task Force for its hard work on the issue.
Furthermore he praised the concept of simplification and technology as a
feasible way to reduce the burden on sellers and move toward mandatory
collection. He recognized, however, that there were several factors that
were evolving that would affect the state efforts. He offered a list of
five factors that states would have to understand as they moved
forward:
- An extreme urgency in the retail community brought on by e-commerce
sales during the last Christmas season.
- Pressure on traditional retailers to cut their loses and move sales
online
- Some technology parties are not interested in the streamlined
system, as they have worries about new liabilities
- Credit Card Companies/ Financial Institutions/ Delivery Companies
- Trusted Third Party is dead in the water due to public privacy
concerns
- Opponents of a level playing field have a lot of money to
spend
Mr. Bullington went on to explain that Wal-Mart has called for federal
enabling legislation that would provide a roadmap for state
simplifications, and triggers for mandatory collection. The
simplifications would include meaningful collection allowances. He told
the Task Force that more and more people were beginning to warm up to the
idea of states receiving mandatory collection on the condition they
simplified their sales tax systems. He stressed that the legislation he
was proposing would be the cost for any extension of the current
moratorium. Finally he explained that the legislation also provided states
with an incentive to simplify quickly that would not exist under a purely
voluntary system.
Mr. Bullington then answered questions from the Task Force. Senator
Borst asked if there was any way this Congress would give states the
authority to require collection. Mr. Bullington agreed that it was
unlikely in this Congress, but that it was more likely than a favorable
decision from the Supreme Court. Rep. Kisber asked who would determine the
triggers and whether the states complied or not. Mr. Bullington gave three
possibilities: 1) New Commission; 2) Uniform Statute; 3) US General
Accounting Office. Mr. Bullington expressed his favor for the GAO to act
as judge. Scott Mackey followed up asking why the uniform statute path was
not the way to go. Mr. Bullington replied that it would likely take too
long, adding that the business community was skeptical that states would
simplify without a "stick." He said that he was not unwilling to explore
mandatory collection for members of a federally approved compact after a
date certain.
Maureen Riehl of the National Retail Federation (NRF) introduced
herself to the Task Force and offered her personal commitment as well as
the support of the NRF. She told the task force that she looked forward to
coordinating support in the members' states and looked forward to working
with the Task Force as a whole. She also pledged that NRF would not change
its position and oppose state efforts.
Local Perspective on Telecommunications Tax Reform
Margaret Browne from Denver Mayor Wellington Webb's office and Ken
Fellman, Mayor of Arvada spoke to the Task Force about their perspectives
and concerns about states making tax systems more uniform at the expense
of local governments. As an example, Mrs. Browne asserted that if the
streamlined sales tax plan were to go into effect in Colorado, and Denver
were forced to collect taxes under current state rules, Denver would lose
up to a third of its total revenue.
As to telecommunications, Ken Fellman introduced himself as a mayor, a
lawyer, and the Chairman of the Local and State Government Advisory
Committee to the FCC. He started out by explaining that the focus of the
1996 Telecommunications Act was to remove barriers and increase
competition. He agreed that fostering competition is a good thing. At the
same time, local governments are charged with managing billions of dollars
of limited public rights of way that impact traffic, safety, and
beautification. He said he was opposed to state laws limiting local
control and cost recovery for public rights of way. He asserted that local
government must maintain the right to recover the costs of street
degeneration caused by telecommunications companies digging up streets to
lay wires and cables.
Mr. Fellman used the City and County of Denver as a test case to assert
that local regulations and fees will not necessarily decrease competition.
He argued that Denver has the highest telecommunications fees and the most
regulation of any city on the Front Range, and yet it still has the
highest levels of competition. He posited the tough but correct way to
deal with the issue is to acknowledge the role that locals play in the
system and to adopt basic principles for administration and taxation of
telecommunications companies. Then he said states and local governments
should proceed on a case by case basis to find the proper balance. He
pointed to the Mobile Telecommunications Sourcing Act as a good example of
that method in action. Mr. Fellman went on to explain the position of the
National League of Cities. NLC's position is that simplification of
regulations is a good step and the cities should be at the table when that
occurs. Second, NLC is opposed to ceding rights of way authority to the
state.
The Task Force then asked questions of the local representatives. Scott
Mackey expressed that local cost recovery seemed to be justifiable, unless
the locality also had a gross receipts tax. Mr. Mackey asked if the locals
could separate the regulatory issues from the tax issues, as the main push
from the industry has been tax simplification? Mr. Fellman pointed out
that the different types of telecommunications up to this point had
dictated their regulation and taxation (i.e. cable v. phone v. wireless).
Mr. Mackey followed up by asking if Mr. Fellman could support a single tax
return administered by the state with the money being distributed to the
cities based on what would currently be due? Mr. Fellman said that his
mind was not closed to the concept. Mrs. Browne replied that she was not
confident enough with the state to allow them to administer and remit the
taxes to the city. Cameron Whitman, from the National League of Cities,
added that it has been her experience that city and local officials trust
the federal government far more than they trust their state government.
The Task Force ended the session with a discussion of a set of
principles for telecommunications reform. Sen. Rauschenberger has
suggested at the last Task Force meeting in Tampa Bay that the Task Force
adopt principles to serve as a base for further discussions on the
direction of state telecommunications tax reform. The Task Force discussed
several principles including specific wording on tax neutrality within the
telecommunications industry and fairness in relation to other industries.
There was also discussion on the tone of the principles as far as possible
mandates on local units of government. Finally, the Task Force discussed
reform of disproportionate property taxes on telecommunications companies.
The industry clearly had made this issue a top priority, though the Task
Force recognized property tax reform would be a more difficult result to
achieve politically. The Task Force agreed to defer further action on the
principles until Senator Rauschenberger could be present, since he has a
strong interest in this area.
The Task Force agreed the next meeting should coincide with the Annual
Meeting in Chicago in July.
The meeting was adjourned.
Prepared by Graham Williams, NCSL | 
