To tax or not to tax

Computer World –

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.

The idea behind simplification is to make it easy for a business to collect sales tax. That would be accomplished by having states adopt a uniform sales tax requirement for out-of-state sellers, eliminating the need for businesses to have to file multiple tax forms to county and city governments in addition to states.

Simplification would also mean setting common definitions on what is taxable. For example, a food gift basket that's taxable in one jurisdiction may be considered a necessity in another tax district and not subject to taxes.

Washington Gov. Gary Locke represents the state that's home to the poster child of

e-commerce, Incc. And although Locke said he opposes adding new taxes on the Internet, "neither am I a proponent of awarding Internet vendors substantial tax advantages that put mainstream merchants at a disadvantage."

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