Business Leaders Seek To Break E-Tax Deadlock

The six electronic commerce business members on the Advisory Commission on Electronic Commerce (ACEC) tried yesterday to strike a compromise between deadlocked groups by urging the U.S. Congress to extend the current tax moratorium on Internet sales for five more years.

The businesses making the new proposal are MCI WorldCom, Gateway, Inc., Time Warner, Inc., America Online, Charles Schwab Corp. and AT&T.

The proposal comes at a time when the Advisory Commission on Electronic Commerce finds itself sharply divided on the tax issue. On one hand, a group of Commission members led by Virginia Governor James Gilmore seeks a full ban on taxes for Internet purchases.

That group is countered a group led by Utah Governor Michael O. Leavitt, which is promoting a competing plan that would make it voluntary for states to set up a simplified sales tax system for remote sellers using technology run by a “trusted third party.”

Compromise Between Deadlocked Camp

The new plan put forth by the six businesses, led by AOL, seeks a compromise between the two deadlocked camps. The group says that states should not have the right to define physical presence with an ISP, a server, telecommunications or a home page.

The members are unanimous in supporting a new definition of “physical presence” in a state. Currently, companies such as telecommunications firms have to keep track of and adhere to tax laws in thousands of cities, states and designated tax districts throughout the United States.

Additionally, the group of six is also pushing for the elimination of the existing three-percent federal excise tax on telecommunications, and a permanent ban on Internet access taxes.

Setting a Timetable for New Tax Structures

The group also wants state and local governments to come up with a uniform sales tax law within three years that would simplify the system and remove collection burdens for remote sellers when compared with traditional retailers.

“We believe the system should not be more burdensome on a business that collects and remits taxes to several taxing jurisdictions than it is to a business that collects and remits taxes in a single taxing jurisdiction,” the group’s proposal states. “By eliminating any disparate burden on Interstate commerce, states will have a pathway toward a system that extends their collection of existing state taxes to remote sellers.”

In consideration of states’ rights, the group also proposes that state governments should have the authority to collect other sales taxes on interstate Internet and mail-order commerce transactions.

This concession by the business group is important because individual states have expressed concerns that the loss of traditional sales tax revenue to ever-increasing tax-free Internet sales threatens state coffers.

Swift Response Against Proposal

In a swift response to the group’s proposal, the National Conference of State Legislatures (NCSL) objected to the plan, particularly since it could prohibit taxes on electronic sales of digital music, photo-finishing, books, movies, and other items.

“Under their proposal, AOL Time Warner wins at the expense of all other retailers as well as state and local governments,” said Illinois Senator Steven Rauschenberger, co-chairman of the NCSL’s Task Force on State and Local Taxation of Electronic Commerce.

Deadline is Near

The proposal by the business group is one of several that will be considered next month by the 19-member ACEC. The Commission is obligated to submit recommendations to Congress by April.