Third Meeting E-Commerce Commission Far From Consensus By Larry Jones On
December 15 the Advisory Commission on Electronic Commerce ended its third
meeting in San Francisco without moving any closer to a consensus on the
key question it was created to address-whether or not state and local
sales taxes should be applied to electronic commerce and remote sales. In
most states, sales and use taxes apply to all commerce but state and local
governments are prohibited by two Supreme Court decisions form requiring
out-of-state merchants to collect their taxes. As a result of this
restriction, since the late 60s and early 70s, state and local governments
lost an estimated $ 3 billion in annual revenues from mail-order sales
made by out-of-state catalogue companies. The Internet and electronic
commerce presents a much bigger problem since customers can order form an
unlimited number of out-of-state companies any time. What's at stake is an
estimated $10 billion loss in annual revenues by 2003. And the financial
impact is expected to grow exponentially in the out years. The
nineteen-member panel, which is responsible for reporting recommendations
to Congress by April 21, is divided between those who favor applying the
sales tax equally to all commerce and those who oppose applying it to
electronic commerce. The anti-tax faction is led by Virginia Governor
James S. Gilmore III, who chairs the Commission. During the San Francisco
meeting Governor Gilmore urged commission members to support a proposal
which he developed that would prohibit all taxes on sales to consumers via
the Internet. A similar proposal has been introduced in Congress by
Representative John Kasich (OH). This proposal would ban all state and
local sales and use taxes on goods or services acquired through electronic
commerce. Numerous questions were raised about the proposals banning taxes on
electronic commerce. Dallas Mayor Ron Kirk, who represents the Conference,
and several commissioners were quick to point out that if sales and use
taxes are banned on electronic commerce, it would undermine and most
likely lead to the elimination of sales and use taxes as a viable
resource. The reason, as several commission members explained, is that all
merchants could set up a kiosk within there store to allow customers to
purchase goods electronically and avoid paying sales taxes. To demonstrate
the point, Mayor Kirk said "in a grocery store, if you have a line that
says Ôpay your taxes' and a line that says Ôdon't pay your taxes,' you're
going to the line that says Ôdon't pay your taxes'." Under
current law, merchants are required to collect the sales tax if they are
physically located within the state. If the Gilmore/Kasich ban is adopted,
these same merchants will not be required to collect sales taxes on
Internet and electronic commerce. Currently state and local governments
receive more than one third of their total revenues from the sales tax. If
they lose this revenue source, they will have to increase other taxes such
as income and/or property taxes to avoid drastic reductions in critical
services like education, law enforcement and transportation. South
Dakota Governor William Janklow, Tennessee state Representative Matthew
Kisber and Hennepin County (MN) Commissioner Randy Johnson presented the
proposal endorsed by state and local groups. In summary, the proposal
(Streamlined Sales Tax System for the 21st Century) relieves merchants
from the burdens of collecting and remitting state and local taxes. It
sets up a "Trusted Third Party" system (which could be a high tech or
credit card company or both) that would use advance technology to interact
with merchants and credit card companies. The TTP would collect money from
the sale of goods via electronic commerce and remit to the merchants
payment for the goods and services, and to state and local governments,
the appropriate sales taxes. States and merchants would participate strictly on a voluntary
basis. The incentive for state and local government participation would be
the potential for collecting taxes owed on remote sales. The incentive for
merchants would be it wouldn't cost them anything, the elimination of
audit risks, software needed to participate would be paid for by state and
local governments, and no collection or remittance or reporting
requirements. The proposal does not require federal legislation or a
change in current "nexus policy,"and it protects the privacy of
customers. All
of the state and local representatives made arguments that the Streamlined
Sales Tax System proposal would level the playing field between bricks and
mortar and online merchants. Governor Janklow charged that proposals aimed
at not taxing Internet sales are "destructive." He also said success in
business competition "should not be based on a loophole" in the tax
law. While
many business representatives made arguments for a level playing field and
voiced support for many of the principles embedded in the Streamlined
proposal, they stopped short of endorsing it. The reason is they would
like to see legislation approved that would give state and local
governments the authority to require out-of-state merchants to collect
state and local taxes. However, it is unlikely Congress would approve such
legislation in this legislative environment when members from both parties
are introducing proposal to ban state and local sales taxes form
electronic commerce. Testifying on behalf of the North American Retail Dealers
Association, James M. Goldberg explained that the inability of states to
collect use taxes (taxes that customers are required to pay on purchases
from out-of-state merchants) has stifled the ability of its members to
compete on a level playing field.
Goldberg said many of the companies in his association, which
includes Wal-Mart, Kmart, and Radio Shack, are being forced to establish
two types of companies-one that is required to collect sales taxes and a
second company in cyberspace that is not. While these company want to
continue collecting state and local taxes, they are positioning themselves
to offer tax-free purchases if competition forces them to do so. At a
December 14 press conference, the e-Fairness Coalition, which represents
over 350,000 brick and mortar and online retailers, urged that state and
local sales taxes be equally applied to all commerce. During the press
conference, business leaders called attention to a recent survey conducted
on behalf of the Conference and the National Association of Counties which
shows that most American taxpayers believe it is unfair that Main Street
retailers must collect sales and use taxes, while Internet retailers
don't. Eighty percent of American taxpayer believe that all retailers who
do business in communities should collect sales taxes. Also nearly 60
percent specifically said they support sales taxes on goods purchases from
Internet retailers. "The result of the survey don't surprise me at all,"
said Washington, D.C. Mayor Anthony A. Williams, who chairs the Conference
Task Force on Electronic Commerce and Internet Technology. He further
explained "it is obvious to the average taxpayer that our cities have got
to collect sales taxes if we're going to provide basic city services. Our
cities and states rely on sales taxes to put cops on the streets, keep or
streets clean, and to educate our children. If local governments don't
have the funds to provide basic services to our residents, everyone
loses." |
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