NCSL Executive Committee Task Force on State and Local Taxation of
Telecommunications and Electronic Commerce
Minutes from the First Meeting, in Jacksonville, Florida
Jacksonville, FL
April 8-9, 1999
Contents:
- Session
1: Telecommunications/Electronic Commerce: Interstate Commerce vs.
State and Local Taxation
- Session
2: Session 2: Overview and Discussion of the NTA Project, the
Commission, and Related Tax Issues
- Session
3: Business View: The Case for Simplification of the Sales and Use
Tax
- Session
4: Business View: The Case for Telecommunications Tax Simplification
and Reform
- Session
5: Local Government Views on Tax Simplification and Reform
- Task
Force Discussion and Planning for Next Steps
Members Attending
Representative Matthew Kisber, Tennessee (Co-Chair)
Senator Steven
Rauschenberger, Illinois (Co-Chair)
Senator John Andreason,
Idaho
Representative David Ennis, Delaware
Senator Richard Finan,
Ohio
Delegate Paul Harris, Virginia
Representative John Hunt, New
Hampshire
Representative Roger Roy, Delaware
Legislative Staff:Tom Covington, North Carolina, Director of the
Fiscal Research Division
NCSL staff:
Bill Pound, Executive Director
Scott Mackey, Chief Economist
Neal
Osten, Senior Committee Director, Commerce & Communications
Thursday, April 8
Task Force Co-Chair Senator Steven Rauschenberger welcomed task force
members to the meeting. He commented on the complexity of tax policy
issues in the Internet age and suggested that this task force could play
an important role in helping state legislatures understand the policy
choices they face. He expressed hope that the task force, working in a
bipartisan manner, could at a minimum identify the issues that
legislatures will need to address--and perhaps provide guidance to the
states by developing model principles for tax reform and modernization.
After other task force members introduced themselves, a discussion
followed about the role of this task force might play in the deliberations
of the federal Advisory Commission on Electronic Commerce (the
"Commission"). Delegate Paul Harris, a member of the Commission, expressed
his hope that the task force would help him develop the "legislative"
position to represent before the commission.
Session 1: Telecommunications/Electronic Commerce: Interstate Commerce
vs. State and Local Taxation
Author Tom Bonnett presented a "big picture" view about where the
Internet and telecommunications industries were going and what changes are
in store for business, government, and society in general. An outline of
Mr. Bonnett's remarks is included in the briefing book.
His first major point was that deregulation of monopoly industries will
end the ability of states to levy "hidden" taxes that could be passed on
to consumers without their knowledge. Many remnants of these former taxes
on monopoly providers still exist, and they are creating inequities
between former monopoly carriers and new entrants in the market. States
that have not already done so will come under increasing pressure to
repeal or modify these taxes.
His second major point was that telecommunications infrastructure has
become, and will continue to be, a critical element of any state and local
economic development strategy. Access to advanced telecommunications
infrastructure is increasingly vital to citizens in rural areas that want
to take advantage of the Internet for communications and commerce.
Mr. Bonnett was critical of local government franchise fees and
"right-of-way" fees on telecommunications providers. He explained that
some localities viewed the 1996 federal Telecom Act as giving them the
green light to levy fees of up to 5 percent of gross receipts for the use
of public rights-of-way. He recently wrote a report, published by the
Council of State Governments, urging states to pass legislation
restricting the ability of localities to levy these fees. NCSL will make
copies of this report available at the next meeting.
His last major point concerned the future of electronic and Internet
commerce. He noted that we are in transition from the industrial age to
the information age. More and more goods and services will be provided in
the form of bits and bytes, not atoms. He listed several types of services
that will increasingly be delivered in digital form, such as banking and
financial services, insurance, music, education and other government
services.
Session 2: Overview and Discussion of the NTA Project, the Commission,
and Related Tax Issues
Scott Mackey, NCSL Chief Economist and Neal Osten, NCSL Senior
Committee Director, began with an overview of the National Tax
Association's Telecommunications and Electronic Commerce Tax Project (the
"NTA Project"). A copy of their remarks is included in the briefing
book.
The NTA Project is a joint government/business/academic effort to
examine modernization of sales and use taxes and telecommunications taxes.
The NTA Project spent about 18 months studying ways to simplify the sales
tax and to impose a duty to collect use taxes on out-of-state vendors that
currently are protected the US Supreme Court in the Quill case.
Ultimately, NTA project members were unable to reach a consensus on
suggested reforms. However, they plan to complete a report outlining areas
of agreement and disagreement and listing policy options discussed by the
project that will be delivered to the Commission.
Mr. Mackey discussed the following sales and use tax simplification
issues addressed by the Project:
- Tax rate simplification--"one rate per state"
- Tax base simplification--"uniform definitions"
- Administrative simplification--"streamlined filing
requriements"
Task force members discussed the tradeoffs between state and local
sovereignty and the need to prevent revenue erosion of the sales tax base.
Senator Finan noted that a neighbor had ordered thousands of dollars worth
of furniture from the Internet, reinforcing his belief that the revenue
loss is a real and growing problem, both for states and localities and for
"Main Street" retailers that must compete with tax free Internet
sales.
Neal Osten and Bill Pound discussed the status of the Commission. They
noted that a lawsuit by the Counties and the Mayors challenging the makeup
of the Commission had still not been resolved, and that NCSL was hopeful
that another state legislator would be appointed to balance the panel.
(Before the meeting, Senator Majority Leader Trent Lott announced that
business representative Jim Barksdale will be replaced by County
Commissioner and former legislators Delna Jones of Oregon, ending the
imbalance on the commission and allowing it to begin its work.)
Delegate Paul Harris noted that Governor Gilmore plans to go ahead with
the first meeting on June 21-22 in Williamsburg, VA. He noted that it
would be helpful for the task force to meet again before then, in order to
provide guidance on which of those topics on the Commission's agenda are
most important to legislatures.
Session 3 -- Business View: The Case for Simplification of the Sales
and Use Tax
Jeff Friedman from the Committee on State Taxation (COST) presented an
overview of the different views of his diverse membership on sales and use
tax reform. COST is a non-profit group representing the tax staffs of many
Fortune 1000 corporations. Copies of Jeff's handouts are included in the
briefing book.
Jeff noted the difficulty of getting members of very diverse
organizations to speak with one voice, particularly on the issue of sales
and use tax collection obligations on remote sellers. His members
uniformly believe that the current sales and use tax system is complex,
cumbersome, and costly for firms doing business in multiple states. The
rate calculation is not a big problem. Rather, it is the numerous and
overlapping filing requirements, the determination of which products are
taxable to the different state and local taxing jurisdictions, and the
burden that onerous and sometimes multiple audits impose on firms.
All COST members would welcome tax simplification, but they are divided
over how much simplification is necessary to trigger a duty to collect
sales taxes for states where they are not physically present. Obviously,
those that now enjoy the protection of Quill are not anxious to collect
and remit the tax, while those with physical presence in many states have
much to gain through simplification. Jeff also argued that one nexus
standard should apply to both sales and use taxes and corporation income
taxes.
Friday, April 9
Session 4--Business View: The Case for Telecommunications Tax
Simplification and Reform
Greg Millert, Tax Vice President for AT&T, argued that the
convergence of Internet, telephone, cable, and other services will provide
customers with the opportunity to receive "bundled" communications
services. This convergence, along with the competition it will bring to
the telecommunications field, will render state and local taxes imposed on
former monopolies obsolete. A copy of Greg's remarks is included in the
notebook.
States that insist on retaining state and local taxes on
"telecommunications" will provide incentives for firms to provide services
through other, untaxed channels. Or, such taxes will put AT&T and
other established providers in a competitive disadvantage. Finally, the
compliance burden on these firms is another impediment to their
competitiveness.
Greg suggested that states "rationalize" their tax systems to impose
equal tax burdens based upon the service being provided, not the structure
or characteristics of the firm providing the service. He also advocated
for a single state-local unified tax that would reduce the compliance
burden of multiple filing and rate requirements. He provided a list of
benefits that would result from such a system.
Pete Poynter of BellSouth echoed many of Greg's comments about the
unfairness of the current system that treats established providers
differently from new market entrants. He provided detailed information
from the southeastern states in BellSouth's service territory, with
specific emphasis on property tax classification systems that impose
higher valuation classes on BellSouth's plant and equipment as compared to
other firms in the business.
Session 5--Local Government Views on Tax Simplification and
Reform
Frank Shafroth, Director of State-Federal Relations for the National
League of Cities, provided a local government perspective on these issues.
Frank is a member of the NTA project.
Frank agreed that many of the changes brought about by E-Commerce and
the telecommunications revolution will require changes in state and local
tax policies. But he urged task force members to keep two points in mind:
1) telecommunications taxes now provide more money for cities than federal
aid; and 2) many local stadium and other infrastructure projects are
funded by a local option sales tax, which seems to be the most popular tax
source among local voters.
Frank noted that, much like the COST members were divided on these
issues, so are his members. Some state municipal leagues understand that
change is needed and are reluctantly willing to work with legislatures on
"one rate per state" systems that include revenue sharing to localities.
In other states, the cities would rather preserve their revenue autonomy
even if it means the eventual erosion of the sales and use tax base. In a
few states, voters would have to approve such changes due to
constitutional home rule authority.
Task Force Discussion and Planning for Next Steps
The task force agreed with Delegate Harris' suggestion that the next
meeting be held before the scheduled federal Commission meeting on June
21-22. The task force will work on a "position paper" that highlights
priority issues that should be addressed by the Commission.
Two sets of dates were discussed: May 27-28 (Thursday-Friday) or June
18-19 (Friday-Saturday). The group agreed that NCSL staff would poll
members about these dates, along with several location options, and decide
based upon a majority vote.
The meeting was adjourned.
Scott Mackey
April 26, 1999 | 
