At the beginning of the meeting, Washington, D.C. Mayor Anthony A. Williams, who chairs the task force, told members that "online shopping is a revolutionary convenience for our citizen and it can be a tremendous engine of economic growth but it posses a challenge to the old ways of regulation and the old ways of taxation." He went on to say "our current tax system is based on 19th century economic assumptions, while billions and billions of dollars are being spent in 21st century cyberspace."

With projections that business-to-consumer sales via electronic commerce will surpass $184 billion by 2004, Mayor Williams, like many other state and local officials, is concerned that state and local governments will lose billions in revenue as more people go online to purchase goods and services tax free. While sales or use taxes are usually owed on most sales regardless of whether they take place over the counter at a local store, or over the telephone or Internet, two Supreme Court decisions prohibit state and local governments from imposing a duty on out-of-state companies to collect their sales taxes. Consequently, state and local governments can compel local merchants located within their borders to collect their sales taxes but not those physically located in a different state. With the advent of the Internet, merchants can locate in cyberspace or physically locate in the non-sales tax states (Alaska, Delaware, Montana, New Hampshire Oregon) and sell to customers in all other states while avoiding tax collection requirements.

"Now why should we be concerned," asked Mayor Williams. "Because sales taxes are a vital source of revenue for our schools and for our local government. Here in the District, more than 20 percent of our revenue comes from sales taxes and that's overall revenue. If you look at local based revenue, it's about a third." If the Internet continues to allow tax free purchasing, Mayor Williams said state and local governments could lose an estimated "ten billion per year by 2003 in uncollected sales taxes on Internet and mail order sales."

To address this problem, Mayor Williams offered three basic principles to guide the task force in developing recommendations for the Conference: (1) tax fairness-all sales transactions should be treated equal, regardless of whether they are completed at a retail store, over the Internet, by mail or over the telephone; (2) federalism-no federal action should preempt the authority of state and local government and their ability to determine their own tax policies; and (3) tax simplification-state and local governments must simplify their sales tax systems so they can be easily applied to all transactions.

Ray Sheppach, executive director of the National Governors' Association, discussed with task force members a proposal for streamlining and simplifying state and local sales tax systems. This proposal, called the Streamlined Sales Tax System for the 21st Century, has been endorsed by the Conference and other state and local groups. It has also been submitted jointly by state and local groups to the Advisory Commission on Electronic Commerce as a recommendation that the groups would like to see submitted to Congress next April.

The proposal calls for a radical simplification of state and local sales tax systems by removing all burdens on out-of-state or remote sellers to collect sales and use taxes. Under the proposal a "Trusted Third Party" (TTP) (such as a credit card company) would be set up to handle these transactions. During a transaction over the Internet, the TTP would collect the payment from remote sales and remit to the seller the cost of the goods and to the state and local governments, the appropriate sales taxes. This would be strictly a voluntary system with incentives for state and local governments as well as merchants to participate. The software that merchants would need to implement the system and the TTP would be paid for by state and local governments.

David Smith, senior corporate counsel with Walmart told members of the task force that "it's fundamentally unfair to tax identical transactions differently based on the medium of communication between the purchaser and the seller." Smith said his company is seeking a level playing field. He said "many Internet retailers do not collect sales and use taxes. This puts Walmart and other bricks and mortar retailers at a competitive disadvantage in the states that impose a sales tax." While Smith called for a level playing field, he said this can not not be achieved without a simplification of sales taxes.

Jackson Mayor Harvey Johnson, a task force member and former state tax commissioner, said "...it seems now that this new electronic movement that we're in is driving the need for uniformity, for fairness, for tax fairness on remote sales throughout the country." Lincoln Mayor Don Wesley, also a member of the task force and a former state senator, said in order for cities to meet the future needs of their citizens in "we have to find a solution to this problem. So I am pleased to see this coming together of ideas and minds to try to solve this basic problem."