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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.,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 found that 60 percent of respondents would buy fewer items online if taxed. also found that 87 percent of online shoppers do not buy over the Internet just to avoid being taxed.,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.

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" (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.,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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Cox-Wyden Bill

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