February 2000

Electronic Commerce Commission Split on Internet Tax

Recommendation Due to Congress in April

The Advisory Commission on Electronic Commerce, a 19-member panel appointed by Congress to study Internet taxation and related issues, remains split on whether to recommend imposing taxes on business conducted on the Internet.

The commission debated taxation issues at its December meeting in San Francisco. It will hold its final meeting in Dallas March 2021, and its recommendation to Congress is due in April.

At the December meeting, Virginia Governor James Gilmore, who heads the commission, unveiled a plan calling for a tax exemption on remote sales. The plan calls for reduction of the federal telecommunications tax from 3 to 1 percent, with a rebate of this 1 percent to states that simplify their tax systems. This plan forecasts $1.7 billion in revenues, which would compensate states for any lost revenue on Internet sales. The plan allows states to use federal welfare funds to buy computers and Internet access for underprivileged families, opposes sales tax on international tariffs on U.S. Internet commerce, and encourages states to simplify their tax codes.

The hearings also focused on three other plans, each sponsored by commission members. The National Governors Association plan, sponsored by Utah Governor Michael Leavitt, calls for simplification of state tax systems, voluntary collection of use tax by remote sellers, and allowing trusted third parties to collect and remit tax for online transactions. If adopted, this could impact offline transactions as well. Dean Andal, chair of California's State Board of Equalization, proposed federal legislation on raising the standard for state tax nexus. Grover Norquist, president of Americans for Tax Reform, introduced a plan to eliminate the 3 percent federal excise tax on telecommunications.

The commission is divided into two camps regarding Internet taxation: Those in favor of taxation include Governor Leavitt and Dallas Mayor Ronald Kirk, and those opposed include Gilmore, Richard Parsons of Time-Warner, and Robert Pittman of America Online. Any formal recommendation requires 13 votes to pass. If the group advises Congress to impose taxes on online commerce, it also must recommend how to accomplish collection, a process many view as complex.

The commission's December meeting included a report that various states are devising plans to collect Internet taxes, a discussion on international tax and tariff issues, and presentations on a number of proposals from other interested parties. See http://www.ecommercecommission.org for a copy of the meeting agenda and a transcript of the teleconference. *