Glenn, I thought you might find this interesting although from an investors stand point the sales tax issue seems to be a non-event. Your thoughts.
<<San Francisco, Dec. 16 (Bloomberg) -- Executives from Charles Schwab & Co., Gateway Computer Inc. and others threw their support behind a moderate, interim step for resolving the debate over Internet tax laws -- a simplification of existing taxes.
Instead of waiting for sweeping plans, such as a ban on Internet sales taxes, lawmakers could help the emerging electronic commerce industry by clarifying existing laws on taxing remote mail order and Internet sales, executives said.
``We can recommend to Congress that they take it up as a very important issue,' Schwab president David Pottruck told the Advisory Commission on Electronic Commerce. Such a step would be useful over the short-term until Congress or the states take up more fundamental questions about Internet taxation.
Pottruck's comments came as the 19-member advisory commission, created by Congress to study and report on solutions to Internet tax issues, concluded a two-day meeting last night. The debate was detailed and substantive, without the rancor and infighting that marked previous meetings.
Many commission members supported the idea of repealing a 3 percent federal excise tax on telecommunications, yet the panel voted 10-5 against making a formal recommendation to this effect. The panel next meets in Dallas in March, where it's expected to draft a final report to Congress.
Commission Divided
The commission is sharply divided. Virginia Governor James Gilmore III, chairman of the commission, leads the camp that wants to abolish taxes on out of state sales via the Internet. Utah Governor Michael Leavitt leads those calling for states to simplify sales and remote-use taxes and apply them evenly on both traditional and electronic commerce.
The debate is similar to a decades-long dispute over taxing mail order sales. U.S. Supreme Court decisions, such as the 1992 U.S. Supreme Court ruling in ``Quill vs. North Dakota,' hold that states cannot force an out-of-state merchant, such as L.L. Bean Inc., to collect taxes on sales in states where they lack physical presence. To do so would essentially violate the constitutional principle of taxation without representation.
Dean Andal, vice chairman of the California Board of Equalization, is proposing Congress pass a bill to make the Quill court decision, with substantial changes, the national standard on handling remote sales. That would eliminate numerous technical uncertainties and conflicting state laws over taxing remote sales, Andal said.
Consumers are supposed to pay remote-use taxes voluntarily to their home state on mail-order and Internet purchases, yet few do. Leavitt and other local officials said this situation could lead to an erosion of the state tax base as electronic commerce grows.
Growth of Online Sales
Forrester Research has predicted online sales will more than double to $18 billion in 2001 from $8 billion in 1999. Sales over Dell Computer Co.'s website are already $35 million a day, said Cindy Oakes of Dell's tax department.
Ted Waitt, chief executive of Gateway Inc. and a commission member, backed the general idea of clarifying the law, as did executives from Hewlett-Packard Co. and Cisco Systems Inc.
John Sidgmore, vice chairman of MCIWorldCom Inc., said it's not clear how quickly electronic commerce will develop and what its growth will mean for traditional retail stores. ``Why wouldn't it be smarter to give a three-year or four-year break before we conclude for sure that it should be taxed?' Sidgmore asked.
The commission reviewed a paper on policies and options concerning Internet taxation. Little progress was made on narrowing disputes, except an agreement to recommend a continued ban on international tariffs on electronic commerce. This is the position of the Clinton administration.
``This commission has pretty much reached an agreement on the policy on international tax and tariff issues,' Gilmore said.
Economists Oppose Gilmore's Plan
Earlier, a group of U.S. economists handed Gilmore a setback by opposing his plans to exempt electronic commerce from sales taxes, saying that would give online retailers an unfair advantage over other merchants.
``There is no principled reason for a permanent exemption for electronic commerce. Electronic commerce should be taxed neither more nor less heavily that other commerce,' the group of 49 economists said in a letter released today. They range from Charles McClure of Stanford University's Hoover Institution, a conservative think tank, to Henry Aaron of the liberal Brookings Institution.
Barring significant reversals in stated positions, it's going to be difficult for the commission to reach agreement on the sales-tax issue, yet Gilmore said it could agree on smaller matters such as banning taxes on Internet access services or barring taxes that target or discriminate against the Internet. in order to simplify the system.
Subsidy for Internet Merchants
Local government officials, who stand to reap the benefit of a tax on Internet sales, argued that banning taxes on online sales would amount to a subsidy for Internet merchants, giving them a powerful competitive advantage over traditional Main Street stores.
``The federal government should not be in the business of picking winners and subsidizing them,' said Randy Johnson, chairman of the Hennepin County board of commissioners in Minnesota.
``Let's let the marketplace decide which businesses succeed and which businesses fail,' said South Dakota Governor William Janklow. Janklow and Johnson were among several witnesses testifying at the two-day hearing, which concludes today.
Andal, the California Board of Equalization official, said the growth in electronic commerce doesn't erode the state sales tax base. Sales tax receipts will be up 9.5 percent this year in California, a state where electronic commerce and Internet use is perhaps the heaviest in the nation.
Instead of eroding the state's sales tax base, ``the opposite is happening. We are having our historical high sales tax year,' Andal said. ``There is no evidence of significant revenue loss.'
Dec/16/1999 8:06 >> |
