To tax or not to tax

By Patrick Thibodeau, Computer World |  Government

WILLIAMSBURG, VA. -- Members of the congressional commission studying Internet
taxation, meeting for the first time, sketched out their views today on whether taxes
should be applied on electronic commerce.

But the most surprising aspect of the meeting was the lack of pigeonholing by many
of its 19 members. It was far from a government vs. business forum.

The person who spoke most strongly for some form of Internet taxation was David
Pottruck, President and
co-CEO of Charles Schwab & Co.

"The Internet should not be favored over other forms of commerce," Pottruck
said. "We don't believe that physical distribution stores should be disadvantaged by
tax advantages for electronic commerce."

But it was a government representative, Dean Andal, chairman of the California Board
of Equalization, who argued against change.

Andal said there is no evidence in his state that the absence of Internet taxes is
hurting traditional sales taxes. "The opposite has been true," he said.

"I believe that we ought to deal with facts," Andal said, "before we chase out these
existing tax systems that have allowed the Internet to grow."

The commission was formed following passage of the Internet Tax Freedom Act in 1998,
which created a three-year moratorium on new Internet taxation. It is made up of eight
representatives from state and local government, eight from business and three from the
federal government.

AT&T Corp. CEO and Chairman Michael Armstrong called for reforms in current tax
systems.

"We have got to use this opportunity for simplicity," said Armstrong, adding that
AT&T fills out 39,000 tax forms annually to satisfy federal, state and local
government taxing requirements.

Armstrong said taxing neutrality -- a tax system that doesn't saddle a particular
industry with special taxes -- is also needed. For instance, he said the
telecommunications industry pays a telecommunications excise tax that was first
implemented to help pay for the Spanish-American War. "Last time I checked, we settled
that issue, but we continue with that tax," he said.

The key issue, at least with some of the states, concerns their inability to collect
sales tax revenue from Web businesses. Businesses only have to collect sales tax from
customers in states where they have physical presence. The customer may still owe state
sales tax, but most don't pay it. Many state officials are worried that as electronic
commerce grows, local sales tax revenue will decline and basic services will be hurt.

Utah Gov. Michael Leavitt urged the commission to narrow its focus to the issue of
out-of-state sales and develop a "radical simplification" of the sales tax system.

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