Update: Group Suggests Tax on Traditional DMers

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Internet sales taxes should be applied to traditional direct marketers but not to online sellers of books, music and other entertainment products, according to a proposal offered by a splinter group of e-commerce companies that are part of a Federal Advisory Commission on Electronic Commerce.

Those familiar with the document said it calls for eliminating taxes on books, music and other entertainment products in both the online and offline worlds in exchange for business leaders' agreement to accept new state taxes on most other Internet and mail-order related commerce that crosses state lines. Currently, out-of-state marketers are legally protected from having to collect a local tax for goods sold - a boundary established by the Supreme Court.

Ron Nearing, a spokesman with Americans For Tax Reform, a Washington advocacy group, said there is a lot of detail that has to be ironed out in the proposal, but marketers and consumers will benefit. "Right now, I think this proposal shows that business people are moving towards the right direction. It does not directly challenge the Supreme Court's decision on [the issue]. It actually kicks the ball down the field to be taken up by another commission and another Congress."

However, even an indirect attempt to tax mail-order sales of any kind is unlikely to garner a single vote of confidence from traditional direct marketers - who already see the process being manipulated by leaders representing more globally oriented industry sectors. The Federal Advisory Commission on Electronic Commerce is made up of a 19-member board that will eventually vote on what policy should be recommended to Congress. In addition, members of the board have already split into three factions: five pro-tax, five anti-tax and six members that make-up a business council.

Charles Schwab Corp., New York, and America Online Inc., Vienna, VA, are reportedly taking the lead in organizing what the group is terming a compromise. MCI Worldcom Inc, AT&T Corp., Time Warner Inc. and Gateway Inc. were involved in the report's language as well.

However, Stan Sokul, a spokesman with Davidson and Co., a Washington lobbying firm that represents the Direct Marketing Association on interactive media issues, said: "Right now, it seems the agenda is skewed more towards what the states say and not what direct marketers might want."

The commission has until April 21 to reach an agreement on what should be proposed to legislators.

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