Internet Sales Tax Decision Comes Tomorrow

While the Advisory Commission on Electronic Commerce’s decision on Internet taxation won’t be final until its meeting in Dallas ends tomorrow, there is much behind-the-scenes maneuvering on the part of commission members to influence votes surrounding the issue.

The 19-member ACEC – which consists of representatives from industry and consumer groups and state and local governments – is charged with examining how a tax system should apply to e-commerce and making a recommendation to Congress based on its findings. The decision must be presented to Congress by April 21, and 13 commission members must reach a consensus. Currently, there is a three-year moratorium on new, special and discriminatory taxes on the Internet.

According to insiders, the scrimmaging to influence votes has grown intense, and much of it is aimed at the six businesses on the commission – America Online Inc., Gateway Inc., AT&T Corp., MCI WorldCom Inc., Time Warner and Charles Schwab.

Earlier this month, the six-business group introduced an updated compromise that expands on an agreement it announced last month. This calls for a federal law that would permanently eliminate new Internet access taxes and extend the sales-tax moratorium for three years while experts study the issue. It also would exempt from taxation “digitized” goods such as music, books or other data. However, other goods would face almost-certain taxation after the three-year extension.

Because the panel’s rules require a 13-member majority to pass recommendations, support by the six-member business bloc will likely determine which recommendation is sent to Congress.

The National Governors’ Association has signaled that it is inclined to go along with the compromise proposal.

“All the various factions are talking and trying to find some sort of compromise that the commission can agree upon and can present to Congress,” said Terrell Halaska, a spokeswoman for the NGA. “We’ve talked with the group as well as other members of the commission, including Gov. Gilmore.”

Indeed, Virginia Gov. James S. Gilmore, chairman of the ACEC – who has opposed giving states new power to collect sales taxes on Internet transactions – complained that the possible deal between the companies and the states “gives carte blanche for Internet taxation to be imposed.”

Gilmore’s staff said he is engaged in a similar campaign to woo the six businesses that have become the swing bloc.

Meanwhile, Gilmore told the more than 500 industry and government officials at the 2000 Global Internet Summit in Virginia last week that the commission may reach a stalemate on its decision about Internet taxation.

In his opening statements, Gilmore said the commission is divided nearly evenly between conservatives, who want to avoid Internet taxes altogether, and seven members – including Clinton administration representatives – who want to develop a tax structure. He said the six business leaders seem to be floating in the middle.

Gilmore addressed the fact that the commission must reach a two-thirds-majority decision before making a recommendation next month and said he’s talked with several members of Congress who would be willing to consider an unofficial plan submitted by a simple majority of the commission.

“I hope the members of the commission will exercise wisdom and vision in their deliberations,” Gilmore said, adding that as chairman of the ACEC, “he has proposed that sales taxes on electronic commerce not be imposed on remote transactions between businesses and consumers.” States, he said, should abolish use taxes, “which are difficult to enforce.”

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