Internet Tax Commission Makes Headway on
E-commerce
By Larry Jones
After hearing witnesses from
the private sector discuss how state and local tax systems were too
complicated to apply to electronic commerce, and witnesses from state and
local governments testify that state and local governments could not
afford to lose the revenue from tax-free Internet sales, Governor Leavitt
told Commission members "we need to ask can we find a system that
works?" He proposed that the
Commission ask governors and other interested parties to submit plans that
show how a sales tax system can be applied to electronic commerce using
criteria adopted by the Commission.
Commission member and MCI WorldCom Chief Operating Officer John Sigmore agreed with
Governor Leavitt and said the Commission needs to decide if there is a
practical solution to the problem. Governor Leavitt also
suggested a list of criteria that state and local officials should follow
in developing plans. Although
the criteria was not finalized, members agreed that plans should:
radically simplify state and local sales tax systems, call for no new
taxes, remove excessive burdens that make it difficult for merchants to
collect sale taxes on remote sales, protect the privacy of the buyer,
acknowledge the sovereignty of states, treat buyers in all states the
same, and eliminate requirements for multiple state audits. State and local officials
will be given the opportunity to present their plans at the Commission
meeting in December. If the
Commission sticks to a work plan urged by Commission member David
Pottruck, president of Charles Schwab Corporation, plans will have to be 5
pages or less and have the support of three or four Commission members in
order to be presented.
After the Commission reviews the plans in December, it will be have
to make a decision on what it will recommend to Congress. This could include no
recommendation, a permanent moratorium on state and local sales taxes on
electronic commerce or a simplified plan for applying state and local
taxes to electronic commerce. On the second day of the
meeting, Commission Chairman and Virginia Governor James Gilmore, III made
final his list of appointments to a 9-member subcommittee that will be
responsible for drafting alternative recommendations after the Commission
considers the plans presented by state and local officials. The following members were
appointed: Dean Andal, Vice Chairman, California Board of Equalization,
who is an outspoken critic of applying state and local taxes to electronic
commerce; Washington County (OR) Commissioner Delna Jones, who has been
supportive of state and local concerns; Washington Governor Gary Locke,
who favors applying state sales taxes equally to all forms of commerce;
Time Warner, Inc. President Richard Parsons, who questions whether state
and local sales taxes should be applied to electronic commerce; U.S.
Department of Commerce General Counsel Andrew Pincus; America Online
President Robert Pittman; Charles Schwab Corporation President David
Pottruck, who believes state and local sales taxes must be simplified and
equitably applied to all forms of commerce; Stanley Sokul, Independent
Counsel, Association for
Interactive Media, a former staff member of New Hampshire Senator Judd
Gregg, who sponsored legislation to impose a permanent moratorium on state
and local taxes on Internet commerce; and Governor Gilmore, also an
outspoken critic of taxing Internet sales. In a September 17 letter to
Governor Gilmore, Conference Executive Director J. Thomas Cochran
expressed disappointment that Mayor Ron Kirk, the only mayor and city
official on the 19-member Commission was not named to the drafting
subcommittee. In the letter,
Cochran reminded Governor Gilmore that he had "...spoken frequently about
achieving equity and balance in all of the work of the Commission. That's why we don't understand
your decision to appoint 3 state officials, 1 county official and no city
official." He urged Governor
Gilmore to reconsider his decision and appoint Mayor Kirk to the
subcommittee. During the meeting,
Commission members received a letter signed by 35 Republican members of
Congress including House Majority Leader Richard Armey (TX) expressing
concern that the Commission was spending too much time considering how to
tax Internet commerce rather than whether it should be taxed at all. The letter reminded the Commission
that proposals to collect
taxes on Internet sales is not popular in Congress or among the
American people, and that many members will oppose any new taxes on the
Internet. Commission members mostly
ignored the letter. Mayor
Kirk reminded Commission members that state and local sales taxes are used
to pay for a variety of critical public services including schools, roads,
transportation, police and fire protection. If sales taxes are not collected
on electronic commerce, he said state and local governments will be forced
to either increase other taxes to offset the revenue loss or significantly
cut back on public services. Hennepin County (MN) Board of
Commissioners Chairman Randy Johnson and Richmond Council member Joseph Brooks
provided testimony on behalf of state and local governments on September
15. Johnson urged that state
and local governments be allowed to collect taxes on Internet sales to
ensure a level playing field between Main Street merchants and those
conducting business online.
"We should not create an elite class of merchants just because the
transaction takes place on the Internet," he said. Brooks told the Commission that he
found it difficult to believe that the same high-tech firms that made it
possible for people to "buy anything, anywhere, anytime online," are
unable to develop the software to facilitate the collection of state and
local sales taxes on those sales. Both Johnson and Brooks
summarized a statement of principles adopted by the Conference and other
Big 7 state and local groups which the Commission was urged to follow in
developing recommendations to Congress. The full
text of the Big 7 statement of principles and a fact
sheet addressing a number of myths about collecting sales taxes over the
Internet are included on pages 10 and 11. |
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