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STATES FIGHT BACK ON E-TAXES:
State and local governments continue to hammer away at opponents
of Internet sales taxes, despite the Advisory Commission on
Electronic Commerce's recent informal recommendation that
Congress keep e-commerce free of taxes. Jim Zingale, head of the
Florida Revenue Department, recently wrote in several local
newspapers the state intends to collect sales taxes in
cyberspace. Tennessee Gov. Don Sundquist has stated that the
collection of e-commerce sales taxes is necessary for the state
to continue to be able to offer basic services. A spokesman for
the Florida Revenue Department says most states do not audit
individuals for sales taxes, but do routinely audit businesses.
Business-to-business e-commerce transactions account for 75
percent to 80 percent of all e-commerce transactions, according
to the spokesman. Legislation that would create "safe harbors"
for Internet transactions was recently introduced in the Senate.
Karl Frieden, a partner in Arthur Andersen's state and local
tax practice, predicts that the debate on Internet sales taxes
will not be settled for another three to five years and says
that until then tensions will rise between government and
business. (CNNfn, 21 April 2000)
"Will E-Commerce Stay a Tax-Free Haven?"
Interactive Week (03/27/00) Vol. 7, No. 12, P. 14; (Brown, Doug):
The members of the federal Advisory Commission on Electronic Commerce (ACEC)
met for the final time last month but were unable to attain enough votes to
achieve the two-thirds consensus required to make formal recommendations to
Congress regarding the issue of e-commerce taxation. However, the board will
be allowed to present its majority findings to Congress, which center around a
plan, agreed upon by 11 of the ACEC's 19 members, that would make it nearly
impossible for online sales to be taxed. Some board members, including
Washington Gov. Gary Locke, Utah Gov. Mike Leavitt, and Dallas Mayor Ron Kirk,
caution that allowing the Internet to remain tax-free will likely result in tax
increases in other areas, such as cigarette taxes or property taxes, or in the
discontinuation of certain state-funded services. States typically gain 50
percent of their revenue from sales taxes, and the inability to tax Internet sales
means states will lose an enormous amount of income. Figures from Forrester
Research show that nearly $525 million in online sales taxes were owed to states
in 1999 but never collected. The main stumbling block to e-commerce taxation is
the fact that, due to state sovereignty in taxation matters, there are nearly
7,500 different sales tax schemes currently in existence across the nation. This
patchwork quilt of sales tax laws needs to be greatly simplified and made
universal across states before any Internet sales taxation system can be
successfully implemented.
http://www.zdnet.com/intweek/stories/news/0,4164,2486575,00.html
FOES OF INTERNET TAX BAN VOW TO FIGHT ON:
The debate over e-commerce taxes is not over yet, despite a
simple-majority recommendation from the Advisory Commission on
Electronic Commerce that Congress extend the current moratorium
on Internet taxes. The National Association of Counties, the
United States Conference of Mayors, and the National Governors
Association is unhappy with the commission's recommendation and
will hold a news conference on Friday to criticize the report.
The groups blame the commission's head, Virginia Gov. James
Gilmore, for interfering with attempts to form a compromise that
would have called for the simplification of state tax codes in
preparation for Internet taxation. The report will be taken up
by House and Senate Commerce committees next week. Sen. Ron
Wyden (D-Ore.) says he would like to see Congress pass
legislation that would extend the tax moratorium, do away with
the federal excise tax, and prohibit Internet access taxes.
Local and state groups are planning to fight any proposed
extensions of the moratorium. In other news, it appears likely
that some time will pass before a compromise can be reached on
competing House and Senate digital signature bills.
(New York Times Online, 4 April 2000)
"The Net-Net on Net Taxes"
Industry Standard (03/27/00) Vol. 3, No. 11, P. 61; (Mowrey, Mark A.):
The Internet allows online shoppers to avoid paying taxes and leads to lost
revenue for states, according to a report by University of Tennessee professors
William Fox and Donald Bruce. States have trouble collecting the use taxes
imposed on catalog and Internet purchases if a company does not operate in the
buyer's state. Last year states lost $1.2 billion in use tax revenue because they
typically collect only about 40 percent of the use tax owed, according to Fox
and Bruce. Business-to-business commerce accounted for $798 million of that
lost revenue. By 2003 lost revenue from online commerce will increase to $10.8
billion, Fox and Bruce predict. Without an Internet tax, online sellers have a
distinct advantage over their offline competitors, says Fox. Seventy-five
percent of Americans polled in a survey sponsored by the U.S. Conference of
Mayors and the National Association of Counties believe online retailers gain an
unfair advantage by not collecting taxes. Sixty percent of the respondents
support Internet taxes, and 80 percent would not support an increase in other
taxes to make up the difference. However, a survey from BizRate.com found
that 60 percent of respondents would buy fewer items online if taxed.
BizRate.com also found that 87 percent of online shoppers do not buy over the
Internet just to avoid being taxed.
http://www.thestandard.com/article/display/0,1151,13071,00.html
Internet Tax Leadership Up for Grabs"
E-Commerce Times (03/21/00); (Hillebrand, Mary):
In November, Republican Tom Bliley will retire from his position as
chairman of the House Commerce Committee, and many are wondering
whether his successor will be as active an Internet advocate. During
his tenure as committee head, Bliley introduced tax moratorium
legislation, steadfastly opposed any form of e-commerce taxation,
criticized the Internet Corporation for Assigned Names and Numbers
for usurping control of the domain name registration process from
Network Solutions, and introduced an electronic signatures bill that
has already received House approval. Candidates for Bliley's position
are current Commerce Committee members Billy Tauzin (R-La.), Mike
Oxley (R-Ohio), and John Dingell (D-Mich.). Tauzin co-authored the
Internet Freedom and Broadband Deployment Act of 1999, attended a
recent COMDEX computer industry convention, and has been vocal on
issues regarding the cable and satellite TV industries. However, his
views on Internet taxation are unclear. Oxley has opposed Internet
sales taxes and was a prominent figure in last fall's House effort to
promote global tax-free e-commerce, but has otherwise remained quiet
on Internet issues. Dingell will most likely be named Bliley's successor
only if the Republicans lose control of the House.
http://www.ecommercetimes.com/news/articles2000/000321-4.shtml
BOXER OFFERS BUDGET AMENDMENT ON DIGITAL DIVIDE:
President Clinton's $2 billion digital divide initiative has the
support of Sen. Barbara Boxer (D-Calif.), who has introduced an
amendment to the Senate Budget Resolution requesting that
Clinton's initiative be fully funded. The amendment is based on
the National Digital Empowerment Act, sponsored by Sen. Barbara
Mikulski (D-Md.). Mikulski's bill calls for $2 billion in tax
incentives to foster greater corporate involvement in efforts at
bridging the divide. Boxer's amendment earmarks $150 million in
funding to train new teachers about technology and calls for $100
million to help fund the construction of upwards of 1,000
community tech centers in rural and poor areas of the nation. If
the amendment is not passed in committee, Mikulski will take her
bill to the Senate floor, Boxer said.
(Newsbytes, 29 March 2000)
WEB TAX PANEL FALLS SHORT OF GOAL:
In the end, reaching a broad consensus on the issue of Internet
taxation proved too daunting a task for the 19 members of the
Advisory Commission on Electronic Commerce. The panel held its
last meeting yesterday -- by conference call -- and a simple majority
of members voted to approve a report recommending a five-year
extension of the existing moratorium on Internet taxes. The
report, introduced by the panel's industry representatives, also
petitions states to streamline their existing tax systems.
Congress will receive the report on April 12. One of the
commission's biggest sticking points was the issue of
nexus -- defining the legal physical location of companies, and
what impact that has on collecting sales taxes. Pro-tax forces,
led by Utah Gov. Mike Leavitt and Dallas Mayor Ron Kirk, were
openly hostile to the report. White House representatives were
equally unhappy with the report. Gilmore denied that the report
would hurt U.S. consumers and criticized the Clinton
administration for taking an unwavering pro-tax position. House
Majority Leader Richard K. Armey also criticized the
administration for pushing a pro-tax agenda.
(Washington Post, 31 March 2000)
"In E-Commerce Tax Talks, Status Quo Triumphs--For Now"
TheStandard.com (03/20/00); (Goldberg, Michelle; Asbrand, Deborah):
Recent reports in the media seem to suggest that the short-term outcome of the
Internet tax debate is set, but uncertainty remains regarding the future of
e-commerce. While the congressional commission studying e-commerce taxes
concludes its meetings in Dallas this week, the New York Times' David Cay
Johnston reports that it is almost certain that the panel will not reach a
consensus, which would result in a default and the preservation of a tax-free
Internet. He says the business bloc of the e-commerce group has backed the plan
of Va. Governor and panel Chair James Gilmore to keep the Internet tax-free until
2006. The Wall Street Journal says, Gilmore, who already has the support of the
commission's conservative bloc, elbowed his way into a conference call between
representatives from Time Warner, Gateway, MCI WorldCom, AOL, Charles
Schwab, and AT&T, and persuaded the business members of the group. With both
the conservative and business blocs, Gilmore has the two-thirds majority needed
for a vote against Internet taxes. Still, imposing Internet taxes is not a "political
impossibility," as Johnston reports. There is plenty of support for taxing sales made
over the Internet, as the Associated Press and other newspapers have reported.
States such as Texas rely heavily on sales taxes. In fact, sales tax accounts for
59 percent of the state's revenue, according to the Dallas Morning News.
Moreover, J.C. Penney, Tandy/Radio Shack, and Compaq are among the retailers
that continue to tax all purchases, while Dell Computer collects taxes on online
sales in Texas because the company has a physical presence in the state.
Nevertheless, there is a loophole to a tax-free Internet in use taxes. Although the
Internet Tax Freedom Act of 1998 bans new taxes, states can fall back on the
use tax, an old tax dating back to the 1930s that some 40 states have on their
books.
http://www.thestandard.com/article/display/1,1151,13104,00.html
MIXED ON TAXES, NOT PRIVACY:
A majority of the members of the Advisory Commission on Electronic
Commerce (ACEC), concerned that imposing new taxes on e-commerce
poses a danger to the privacy of Internet consumers, have called
for Congress to hold hearings on the matter. The ACEC's privacy
proposal was introduced by Stanley Soku of the Association for
Interactive Media. It urges congressional committees to "explore
the privacy issues surrounding Internet taxation, with special
attention given to the costs that any new system of revenue
collection may have upon other values that U.S. citizens hold
dear." Three ACEC members representing the Clinton administration
withheld their votes on the proposal. Washington Gov. Gary Locke,
Utah Gov. Michael Leavitt, and Dallas Mayor Ron Kirk also
originally withheld their votes, but then changed their minds out
of concern that their stance could label them as being against
consumer privacy on the Internet. (Wired News, 21 March 2000)
AGREEMENT BY FEDERAL PANEL ON E-COMMERCE TAXES APPEARS DOUBTFUL:
The Advisory Commission on Electronic Commerce--meeting today for
the final time--is not likely to make a formal recommendation to
Congress on the issue of new Internet taxes, according to Utah
Gov. Mike Leavitt, chairman of the National Governors'
Association. Six companies on the panel represent the votes
needed to achieve a two-thirds majority on a recommendation.
A proposal introduced by the companies would give them tax breaks
in exchange for implementing the new taxes. With the
chances of a formal recommendation looking doubtful, the
speculation now is that a simple majority of commission members
will back a new moratorium on Internet taxes. The panel is also
expected to urge that Congress lift the 3 percent telephone
excise tax and permanently bar Internet access taxes.
(Wall Street Journal, 20 March 2000)
ADVISORY PANEL ON INTERNET TAXES IN TALKS ON ACCORD:
One week from now, the Advisory Commission on Electronic Commerce
will hold its final meeting. As the meeting approaches, activity
among the commission's members has increased. The National
Governors' Association has been trying to broker a deal with the
commission's corporate members to get their support for the
collection of e-commerce sales taxes. The corporate members are
perceived as the swing votes on the issue of e-commerce taxation.
Meanwhile, Virginia Gov. James Gilmore is making a bid to get the
corporate members to join his anti-tax coalition. On Friday, the
pro-tax forces began courting the corporate members with a plan
that gives companies tax exemptions on "digitized" goods, including
music and books. The plan calls for a three-year moratorium on new
taxes to give state and local governments time enough to restructure
their tax systems. After the three years have passed, e-commerce
sales of non-digitized goods, such as furniture and automobiles,
would most likely be taxed. One source indicated the plan was put
forth by Time Warner and Charles Schwab, although other sources
dispute this assertion. Gilmore is also offering the companies tax
incentives. (Wall Street Journal, 13 March 2000)
NET TAX COMMISSION DISSENSION MAY BE GROWING:
The Advisory Commission on Electronic Commerce will hold its next
meeting March 20, and its final report is due to Congress on
April 21, but recent events seem to indicate that panel members
are far from one mind on such issues as Internet sales taxes or
ways to bridge the digital divide. The commission may very well
be unable to come up with any recommendations for Congress, due
to the diversity of different proposals that are being discussed,
says a staffer for Washington Gov. Gary Locke, a member of the
commission. Just this week panel members introduced more
proposals, including an amendment that would enable commission
members to introduce new proposals until the final report has
been finished. Commission members generally fall into two
camps--the anti-Internet-tax faction headed by Virginia Gov.
James Gilmore and the pro-tax faction led by Utah Gov. Mike
Leavitt. Commission member Grover Norquist, president of the
Americans for Tax Reform, is pessimistic on the group's chances
of coming up with a formal recommendation to Congress. Others
believe a compromise could be close at hand.
(CNet, 9 March 2000)
CLINTON BACKS WEB SALES TAXES:
President Clinton met yesterday with members of the National
Governors' Association to discuss the hotly debated issue of
e-commerce taxes, calling on state governors to be quick about
making a decision on the matter, rather than waiting five years.
More importantly, Clinton said that states should be allowed to
form their own policies regarding online sales taxes, free of
interference from the federal government. Although Clinton gave
the states his blessing to implement an Internet sales tax, he
never actually indicated that he supports such a tax.
Presidential candidates are also taking stances on the issue.
Sen. John McCain (R-Ariz.) favors a permanent ban on e-commerce
taxes, while Texas Gov. George W. Bush is backing efforts to
extend the moratorium on Internet taxes until 2004. Vice
President Al Gore has taken a middle-of-the-road approach that
favors a tax moratorium accompanied by negotiations between state
and local governments and ISPs. (Washington Post, 29 Feb 2000)
REPORT: $525M IN E-TAIL SALES NOT COLLECTED IN 1999:
Retail sales on the Internet reached about $13 billion in 1999,
yet state and local governments were unable to collect $525
million in tax revenues that could have been generated by the
sales, according to Forrester Research. Internet retail sales
will reach $184 billion in 2004, provoking more contention in the
online taxation debate, says Forrester's James McQuivey. The
five most populous U.S. states were the biggest losers.
California lost $73.8 million in sales tax revenues in 1999,
Texas $51.9 million, Illinois $32.6 million, Florida $30.3
million, and New York $26.6 million. The statistics will likely
bolster state governors' position on the issue of Internet taxes.
Forrester itself has taken a position on the issue, with analyst
Steven J. Kafka stating that "Internet, catalog, and
brick-and-mortar sales should all be taxed the same--based upon a
buyer's physical location." Kafka adds that new technologies
will permit companies to collect the taxes with ease and that new
taxes will not keep consumers from shopping on the Web.
(E-Commerce Times, 25 Feb 2000)
The Tax-Man Commeth
Governors Push for Internet Taxation
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