April 12, 2000

Dear Senator Lott, Senator Daschle, Speaker Hastert, and Representative Gephardt:

We are writing to urge support for a fair and equitable system to ensure that all Main Street retail stores and Internet commerce can compete on a level playing field and to ensure that all Americans can join us in supporting the Internet as part of our new economy. Unfortunately, the Advisory Commission on Electronic Commerce (ACEC) proposal that was included in the Internet Tax Freedom Act (ITFA) commission report, but failed to attain the two-thirds majority required by the Act, does the opposite. Instead of addressing the requirements laid out in the law to recommend a new state and local sales tax system to provide for fairness and balance, the proposal chose to use this opportunity to seek a host of new and expensive special tax breaks. We urge you to reject the report.

As stated in the duties section of the legislation the commission was to "conduct a thorough study of federal, state, local, and international taxation and tariff treatment of transactions using the Internet and Internet access and other comparable intrastate, interstate, or international sales activities." The commission proposal did not focus on Internet transactions, but instead made a recommendation that would reduce other existing state and local tax revenues by over $25 billion per year.

Not only would the proposal eliminate existing sales taxes on such items as books, movies, music, and magazines that are sold in local "bricks and mortar stores" but also would substantially reduce existing state corporate income and property taxes. The proposal, with a revenue loss of that magnitude, would disrupt the financing of state and local services and likely devastate education funding, which represents over 35 percent of the average state budget. Furthermore, instead of creating a level playing field for all sellers, it would put the federal government in the position of both picking winners and losers and also making the current digital divide more severe.

The most important reason for us to oppose this proposal is that it would substantially interfere with state sovereignty. The U.S. Constitution was very clear in both ensuring state sovereignty and creating a critical balance between federal and state authority. For well over 200 years the federal government has respected state sovereignty and has been extremely careful not to interfere with the states' ability to independently raise revenues. This proposal would dramatically undercut this precedent.

It is hard to think of any more fundamental responsibility of governments and elected officials in our nation than that of determining which taxes and fees are utilized to pay for the services that our citizens want and need. State and local governments rely on sales, property, and income taxes - no two the same, reflecting the enormous diversity of our nation. This proposal would intrude very deeply into the rights and responsibilities of state and local governments.

Sincerely,

Signatures on file.