Mayor Guido Joins Retailers, Congressional, State and Local Leaders in Urging Congress to Ignore E-Commerce Commission’s Report

By Larry Jones
April 17, 2000

At an April 7 press conference in Washington, D.C., Dearborn Mayor Michael Guido urged members of congress to ignore a report developed by the Advisory Commission on Electronic Commerce which recommends exempting numerous items sold over the Internet from state and local taxes. The 19-member Commission comprised of government and business officials was created by Congress in 1998 to examine, among other things, whether and how state and local sales taxes should be applied to electronic commerce and remote sales. Mayor Guido joined with government and business leaders from some of the nation’s largest retail stores including Wal-Mart, JC Penney, Target, Circuit City and Radio Shack, in criticizing the report.

The focus of their criticisms was on recommendations in the report that would allow remote (out-of-state) sellers to continue selling their goods over the Internet, telephone and through mail orders without an obligation to collect state and local sales taxes. A chorus of local retailers attending the press conference called the report unfair because it would give remote sellers a competitive advantage over local retailers. Mayor Guido and other state and local leaders agreed and asserted that as more people use the Internet to make tax-free purchases, it will erode state and local revenues that are used to fund education, law enforcement, transportation and other critical public services.

The report, which was formally presented to Congressional leaders on April 12, includes numerous recommendations calling for exemptions and other changes that could cause state and local governments to lose an estimated $30 billion annually according to a recent analysis prepared by the Federation of Tax Administrators (FTA). For example, the report recommends exempting digitized goods and their equivalents from state and local sales taxes. This would include all books, movies, magazines, music on compact disks, newspapers and electronic games downloaded over the Internet and sold over the counter. The report also recommends relaxing the so called “nexus rules” to allow out-of state merchants to use local affiliates and other entities to market their products without an obligation to collect state and local sales taxes or income taxes. The FTA analysis shows the impact of the majority recommendations on state and local revenues by industry area. It shows how certain types of companies, particularly those that had representatives on the Commission, stand to benefit from the exemptions. See chart on page 13.

Approved on March 30 by a final vote of 10 to 8 with one member absent, the report failed to receive the broad based consensus required by law.  Under the Internet Tax Freedom Act, the Commission was required to include in its report only those recommendations and findings that received the support of a super majority, 13 of the 19 members. Criticizing the report as being tilted towards special interest, Mayor Guido called the report “a mouth-piece for companies with representatives serving on the Commission who insist on tax breaks and competitive advantage.” Instead of fair competition, he said “they want an un-level playing field not available to their competitors.” He further said “we need a fair and equitable tax structure that both treats all businesses responsibly and produces the revenues essential for providing public safety, education and transportation.”

Tom Grimm, president and chief executive of SAM’s Club (a division of Wal-Mart), told reporters that the current loophole in our tax system has “created two fields of retail competition.” He explained, “on one playing field, brick-and-mortar retail stores, both small and large, are required to collect sales tax on behalf of states. On the other, the rules applying to remote sales only encourages consumers to voluntarily pay the use tax equivalent of a sales tax. As we all know, this voluntary tax is easily ignored.” He said “at Wal-Mart and SAM’S Club, we believe the creation of a level playing field is best for a sound economy; it represents good tax policy; and it is critical to the quality of life in our local communities.”

Senators George Voinovich (OH), Bob Graham (FL) and Byron Dorgan (N.D.) joined the press conference to let everyone know they would be supporting the efforts of state and local governments and retailers to create a level playing field. They also reiterated their commitment to place a hold on any legislation that would hamper such efforts. The first test of their commitment may come soon if Senator John McCain (AZ) holds to his pledge to move immediately S. 2255, a bill he is sponsoring that would extend the moratorium on new Internet taxes for five additional years. The current 3-year moratorium is set to expire in October 2001.

A hearing on the bill was held on April 12 by the Senate Commerce Committee, which is chaired by Senator McCain. Speaking on behalf of the National Governors’ Association, Utah Governor Michael Leavitt offered testimony opposing the bill. He argued that there is no compelling need to extend the moratorium since the current moratorium is not set to expire for another 18 months. He said the issues addressed by the bill—prohibiting taxes on Internet access, multiple and discriminatory taxes— have little to do with the sales tax collection issue that has dominated debate on extension of the moratorium. He argued that it is important to the Internet industry and state and local governments that the sales tax collection issue be addressed as a part of any extension proposal.

Senator McCain had scheduled his bill for mark up on April 13 but pulled it after state and local government groups, working with retailers, were successful in lining up enough votes to defeat the measure in committee. But McCain is expected to try to move his proposal again in early May soon after members return from a two week recess. House Speaker Dennis Hastert (IL) announced on April 12 that he would introduce a similar proposal in the House next month. The announcement came during a ceremony at the U.S. Capitol, where Virginia Governor James Gilimore, who chairs the Advisory Commission on Electronic Commerce, formerly presented a copy of the Commission’s majority report to Speaker Hastert and Senate Majority Leader Trent Lott (MS). Both leaders have pledged to work to pass bills extending the moratorium this session.

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