Mayors and Business Council Members Discuss Local Governments in the Digital Age

By Larry Jones

During the March 27 breakfast plenary session, a panel of mayors and a business representative presented a lively discussion on electronic commerce and innovations in technology. Conference President Denver Mayor Wellington Webb kicked off the session by telling delegates “one of the most critical issues facing state and local governments is the loophole in our tax system that prevents us from collecting sales and use taxes on remote sales.” He explained that “while our resident are required to pay use taxes on these sales, remote merchants are under no obligation to collect and remit them to the appropriate state and local government. Consequently, he told delegates this problem is undermining the sales tax and eroding a significant revenue source for state and local governments.

Mayor Anthony Williams, who chairs the Task force on Electronic Commerce and Internet Technology, told delegates “we’re here today because our world is changing. Like television and the telephone before it, the Internet is bringing us closer together in ways we never could have imagined. Communications across oceans and continents is free and virtually instantaneous.” He said “it took 38 years for the telephone to reach 50 million Americans, and 17 years for television. The Internet reached 50 million Americans in just four years.” Mayor Williams explained that this rapid change is reshaping some of our most basic daily task–from reading the newspaper, to paying bills, to running a political campaign. “As mayors our challenge is to be in front of change, and to ensure that it is positive change for our citizens,” he said.

Commenting on Internet taxes he said “we can’t allow our merchants on Main Street to be squeezed out of the market because of unfair competition, and we cannot allow our cities to wither on the vine because our tax system dates back to the 30s.” He pointed out that the Task Force had developed a resolution addressing the issue and that he was pleased it was unanimously approved by the Urban Economic Policy Committee.

Mayor Ron Kirk, who is the only mayor serving on the Advisory Commission on Electronic Commerce, provided delegates an update on the Commission’s work. He said the panel was created to examine the impact of state and local sales taxes on electronic commerce and make recommendations to Congress as to whether or not such taxes should be applied to electronic commerce and remote sales. From the beginning, he said the Commission got off to a bad start when Congress did not appoint an equal number of state and local government, and business representatives as required by law. Kirk pointed out that the Conference was forced to file a lawsuit to force Congress to appoint balanced representation. He also pointed out that unlike most state and local representatives on the Commission, Virginia Governor James Gilmore, who chairs the Commission, and two other state officials oppose taxes on Internet Commerce. On the other hand, he said several of the business representatives have voiced support for applying sales taxes equitably to all commerce.

To send a recommendation to Congress, 13 members must agree on a consensus recommendation. With only one more meeting scheduled (for March 20 and 21 in Dallas) before the April 21 date the Commission is required to report to Congress, the 19-member panel appears to be deadlocked on the sales tax issue. And it is unlikely 13 members will agree on a consensus recommendation. However, Kirk believes the Commission will be able to reach consensus on several issues. He said there appears to be wide support for recommending that there be no state and local taxes on Internet access fees, no tariffs on international trade, and the elimination of the federal excise tax on telecommunications.

Kirk told delegates that the Conference and other state and local groups are supporting a proposal that will simplify and streamline state and local sales taxes to make them user friendly for electronic commerce and remote sales.  The proposal requires states and localities to work together on a voluntary basis in a multi-state arrangement to ensure there are no burdens placed on remote sellers to collect and remit sales taxes, and to be audited by multiple states. Instead, the proposal calls for setting up “Trusted Third Parties” (such as credit card companies), who would figure out the appropriate sales tax on remote sales, and collect and remit such taxes to state and local governments. No federal legislation is required to implement the proposal.

Kirk said one of the attractive features of the proposals is it gives businesses amnesty from tax audits. He told the story about the Chairman of AT&T, a Commission member, who said they fill out something like 3700 different tax audits and the fear among small companies is that if they are subject to that many audits they would go under. In summary, Kirk said electronic commerce is causing a serious erosion of the local tax base. He explained this issue is not about new taxes. “It’s about applying the sales tax fairly to all commerce. It’s about fire trucks, schools, garbage trucks, potholes and everything cities have to pay for.”

Oakland Mayor Jerry Brown, who chairs the Cities in the Digital Age Task Force, told delegates that the Internet and digital technology have greatly improved our ability to communicate and process information. He said Internet technology has caused an explosion in economic growth and “totally revolutionized who we are.” Mayor Brown said he was deeply concerned about the digital divide, the gap between those who have access to Internet technology and those who do not. Those who have access have an advantage over those who do not as far as information, communications and economic opportunities are concerned. He explained that enormous wealth is being created but it is not being shared with all in our communities. For example, he pointed out that in some communities, the best and worst schools are only a few miles apart. He called on mayors to take the moral high ground and work in their communities to bridge the gap by making Internet technology available to all.

David Gragan, Executive Director of E-Commerce for Oracle Corporation, told delegates that technology is changing the fundamental way we do business. He said the challenge is use information and technology to make better decisions in carrying out the normal, daily activities of city government. Governments must incorporate new technologies as they come along to streamline their service delivery process. New technology is enabling state and local governments to adopt smart procurement procedures, save money while making better decisions and provide 24-hour services to their constituents. Ultimately, he believes new technology will lead to a paperless business community. And on the issue of applying state and local sales taxes to electronic commerce, Gragan said “I believe there is an inevitability to taxation on e-commerce.”

Akron Mayor Donald Plusquellic told delegates about the National Inventors Hall of Fame, which recognizes the role of technology in invention. His city’s pilot project is supported by the Ford Foundation and the U.S. Patten and Trademark Office. It provides Invention Camps for children where they are introduced to hands-on activities relative to technology and inventions. He said while the project has expanded to many areas, in many cases they are located in places that are out of reach to city children. Plusquellic explained that the program would be expanding and he urged mayors to contact the Ford Foundation to inquire about locating a project in their area.