National Governors' Association
National Conference of State Legislatures
National Association of Counties
National League of Cities
Council of State Governments
International City/County Management Association
The U.S. Conference of Mayors

June 13, 2000

The Honorable John McCain
Chairman
Senate Commerce Committee
Washington, D.C. 20510

Dear Mr. Chairman:

We applaud your recent public comments that Congress needs to take a more "measured approach" with regard to Internet issues and that an extension of the moratorium on Internet taxation "could wait." We are writing to request that you oppose legislation to be offered by Senator Wyden, which would add unnecessary delay and interference and eliminate any incentives for our efforts to radically simplify and streamline state and local sales and use tax systems. His bill would create a meaningless "fast track procedure" vote by Congress. It would do nothing to create the same level playing field for states and local governments as the federal government. We also ask that you oppose any extension of the Internet tax moratorium unless it is combined with legislation that creates a level playing field.

The current moratorium established under the Internet Tax Freedom Act extends for another 16 months until October of 2001, during which time technology will be changing rapidly. As technologies converge and companies "bundle" Internet access with other services like Cable TV and telephony, the potential for unintended impacts grows dramatically. The potential for discrimination against traditional telecommunications services would also increase. There is no compelling need to act this year unless the moratorium extension is combined with legislation that creates a long-time solution for everyone.

Deferring consideration of this legislation until next year would have two advantages. First, the trend of technological change will be clearer, and thus the impacts will be better understood. Second, state and local governments are already moving forward aggressively to develop a simpler, streamlined sales tax system that states can adopt. Over thirty states have already met four times this year and have meetings scheduled each month this summer, working in tandem with the private sector, to develop model state legislation. That model legislation will be ready well before the current moratorium expires. This would enable the Senate to address this issue once and for all by enacting a compact, which would provide for the same level playing field at the state and local level as at the federal level, in conjunction with a moratorium extension. Just as the federal government currently collects airline ticket taxes and other consumption taxes on online transactions like it does on brick and mortar sales, this would offer an opportunity to eliminate state and local sales and use tax unfairness between remote and brick and mortar retailers.

As Intel CEO Andrew Grove and Hewlett-Packard CEO Carly Fiorina testified before Congress this week, we must eliminate any special tax advantages, and allow states to work together to simplify their current sales tax systems. This would keep tax policy neutral so that neither traditional retailers nor remote sellers (catalog, Internet, or similar enterprises) are given an advantage based on tax policy.

The nation's state and local elected officials, every major organization representing the nation's retailers, and virtually every organization representing elementary, secondary, and post secondary education oppose any effort to extend the moratorium. All strongly support achieving a balanced, state-based approach with a level playing field.

Sincerely,

Signatures on file.