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N EWS RELEASE
Date: March 22, 2000Media Contact: Bill Wyatt, 202-624-8667 / Gene Rose, 202-624-8667 Federal E-Commerce Panel Fails to Join
NCSL Urges Congress to Use Caution When Receiving ACEC Report WASHINGTON, D.C. -- The National Conference of State Legislatures (NCSL) expressed their disappointment that the federal Advisory Commission on Electronic Commerce (ACEC) failed to support state legislators and governors in their efforts to develop a voluntary, streamlined, multi-state system for the collection and administration of existing sales and use taxes. NCSL was pleased, however, that an industry proposal which would preempt state and local governments' ability to collect sales and use taxes on products and services that are already subject to such taxes, failed to receive the required two-thirds support of the federal e-commerce panel. Such a preemption would seriously diminish the tax base in many states, resulting in reduced services and a shifting of the tax burden to taxpayers unable to benefit from these proposed tax breaks. The proposal, which originated from e-commerce industry members of the ACEC, such as America Online, Time Warner, AT&T and MCI WorldCom, was strongly opposed by NCSL. According to Tennessee Representative and NCSL Task Force co-chairman Matthew Kisber, "The Commission's failure to make a formal recommendation does not in any way hinder the efforts we have undertaken in ensuring tax equity and fairness between 'Main Street' businesses and remote sellers, including Internet retailers." Representative Kisber continued, "We are extremely pleased that the Advisory Commission failed to achieve a two-thirds vote on the industry proposal." "The AOL/Time Warner/AT&T/MCI proposal had such a large loophole that you could drive a truck through it," said Illinois Senator Steven Rauschenberger, co-chairman of NCSL's Task Force on State and Local Taxation of Electronic Commerce. "Under their proposal, AOL/Time Warner and other e-commerce giants win at the expense of all other retailers as well as state and local governments." "We believe that Congress should not rush to judgement on any report from the Advisory Commission, as it failed to achieve the consensus of at least two-thirds of the Commission's membership," both legislators stated. "We would urge Congress to take the advice advocated both by President Clinton and Representative Christopher Cox that the issue of sales tax collection on electronic commerce transactions belongs to the states." State legislatures have begun the process of reforming the sales and use tax collection process despite the ACEC's inability to formulate sound public policy on the issue. NCSL's Executive Committee Task Force on State and Local Taxation of Telecommunications and Electronic Commerce has worked for the last year to address how states can modernize their state-local sales and use tax systems to accommodate the rapid changes in technology and the explosion of Internet commerce. NCSL's model legislation, currently pending in over a dozen state legislatures, will allow states to participate in discussions with other states on developing a voluntary, streamlined, multi-state system for the collection and administration of existing sales and use taxes. Specifically, NCSL objected to the industry's self-serving "bright-line" tests of duty to collect sales and use tax. According to the proposal, the list of in-state activities that would not subject a remote seller to a duty to collect tax include having an affiliate in the state, repairing goods sold by the remote seller, contracting for return of merchandise, and engaging in advertising. "The Commission should have rejected the Business Caucus' 'bright-line' tests," stated Charles McClure, former Reagan Administration official and now with the Hoover Institution. He continued, "if enacted, these nexus exemptions would go a long way toward gutting the sales tax." The industry proposal also would have imposed a 5-year prohibition on taxing Internet sales of "digitized goods/products" and their "functional equivalents." Currently, many states have laws on the books that tax the "functionally equivalent" tangible products such as newspapers, books, periodicals, photos, software, movies, compact discs, cable services, etc. all of which would become tax-exempt under the business proposal. NCSL believes that the ACEC's failure to act on this important policy issue is an opportunity for state legislatures to establish meaningful reform in sales tax collection. "Deadlock on the Commission was preferable to any proposal that would preempt states' sovereign authority to determine their own tax policies," said NCSL Executive Director William Pound. "I am encouraged that the ACEC's failure will not impede the progress of ongoing efforts within state legislatures to authorize multi-state discussions on simplifying sales tax collection and administration."
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