*U.S. Advisory Commission on Electronic Commerce Make Final Vote on Recommendation to Congress

The Advisory Commission on Electronic Commerce met yesterday for the last time via a live teleconference and voted to present Congress with a majority report outlining a business proposal favored by the Direct Marketing Association.

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. Currently, there is a three-year moratorium on new, special and discriminatory taxes on the Internet.

At their last meeting in Dallas earlier this month, the commission debated about this business plan, which was proposed by the business members of the commission. At the final meeting, the proposal received 11 votes of support. The plan needed 13 votes to be presented as a formal recommendation to Congress.

The business members on the commission are C. Michael Armstrong, chairman/CEO of AT&T; Richard Parsons, president of Time Warner Inc.; Robert Pittman, president/CEO of America Online Inc.; David Pottruck, president/co-CEO of Charles Schwab Corp.; John Sidgmore, vice chairman of MCI WorldCom and chairman of UUNET; and Ted Waitt, chairman of Gateway Inc. Virginia Gov. James Gilmore, chairman of the commission, also supported the proposal.

Seven members abstained, including three members from the Clinton administration, Utah Gov. Michael Leavitt and Washington Gov. Gary Locke. Dallas Mayor Ron Kirk cast the lone dissenting vote.

During yesterday’s meeting, the commission voted 10 to 8 to present the majority report to Congress as a substitute. Insiders said the vote would have been 11 to 8 if all members of the commission had been present for the call. One member of the business caucus — MCI’s Sidgemore — was not present for most of the call.

A debate sprung up during the teleconference after Gov. Leavitt proposed that the ACEC also present a minority report to Congress that includes the opinions of those who did not favor the report.

Commission chairman, Gov. James Gilmore, R-VA however, struck down the proposal and said that “minority positions which do not prevail before the commission will not be included in the report.” As part of the report, members will be able to submit their personal views — in 1,000 words or less — on e-commerce taxation.

In his closing words, Gilmore said “the report will be forwarded to the Congress…It is a report we can be proud of and it will be judged on the merits of its ideas.”

Gilmore said “the good ideas are going to succeed — you can put your faith in that. I am convinced that the commission has put forward a comprehensive report of good ideas for the American people.”

Gilmore also said that Senate Finance Committee Chairman William V. Roth, Jr. (R-DE) and Ranking Democratic Member Daniel Patrick Moynihan (D-NY) announced their intention to hold hearings on the report later this year. In addition, he said that Rep. Tom Bliely (R-VA), chairman of the House Commerce Committee, has also asked him to present the results of the report to the committee. In addition, Sen. John McCain (R-AZ), Chairman of the Senate Committee on Commerce, Science, and Transportation has scheduled a hearing on the report for May 6.

“My phone already is ringing off the hook from Congressmen and Senators who want to move our report into legislative action,” Gilmore said.

The recommendations in the business plan proposes that Congress:

Make permanent the ban on Internet access taxes.

Eliminate the 3 percent federal excise tax on telecommunications.

Establish standards for simplification of state tax systems.

Define nexus (connection) standards for a company’s physical presence and provide specific examples for out-of-state taxation.

Establish a new advisory commission to oversee states’ tax simplification efforts.

Extend the current moratorium on Internet taxation for an additional five years.

More specifically to direct marketers, the proposal asks Congress to adopt legislation expanding a 1992 decision by the U.S. Supreme Court — known as the Quill decision — prohibiting states from taxing mail-order sales unless the seller has a physical presence in the state. Currently, both catalog and Internet sellers collect sales taxes from customers on behalf of a state if their companies have a physical presence there. The business bloc’s proposal, however, indicates that physical presence doesn’t include such things as an Internet service provider or an Internet home page and that a seller doesn’t have nexus if it has a contractual obligation with another party in a state that it uses simply for product returns or to repair goods.

“The commission process was a major success from a direct marketing perspective for two reasons,” said Stanley Sokul, a Washington-based lawyer and member of the commission representing the Association for Interactive Media. “One, it did not overturn the Quill nexus protections. And two, it shined the spotlight on the burdensome nature of states and local tax systems for a multi-state seller. This hopefully will lead to tax simplification down the line and ultimately good results for direct marketers.”

Earlier this month, the DMA praised the proposal.

“While it is disappointing that the business plan did not receive the two-thirds vote necessary for a formal recommendation to Congress, we nevertheless think that the majority vote it did receive warrants it being passed along to Congress for its consideration,” said H. Robert Wientzen, president/CEO, DMA. “The Business Plan would help ensure the continued growth of the Internet to the ultimate benefit of consumers and marketers.”

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