E-Tax Talks Collapse

The drive for a compromise on Internet taxation disintegrated late Monday night when members of the Advisory Commission on Electronic Commerce (ACEC) failed to reach the two-thirds majority vote required for a formal recommendation to the U.S. Congress.

Though the warring factions appeared to be inching toward a compromise of late, hope for agreement dimmed as the discussion grew increasingly divisive. Dallas, Texas Mayor Ron Kirk confronted six business representatives on the group who have allied themselves with Virginia Governor James Gilmore, an outspoken tax opponent. Kirk accused the group of attempting a “multibillion-dollar tax grab” to serve their own interests, regardless of its damaging effect on most retailers.

Gilmore’s coalition seeks a ban on taxing everything from online consumer purchases to Internet access, as well as reducing taxes on telephone companies and creating a permanent exemption from sales tax for digital products delivered both over the Internet and offline.

Gilmore has long fought for a full ban on Internet taxation. However, with support from only 11 of the 19 ACEC members, his proposal fell short of the two-thirds majority needed to win the day.

Treasury Official Speaks Out

Meanwhile, in Washington, D.C., Deputy Treasury Secretary Stuart Eizenstat spoke out for the first time on the issue, calling for states and municipalities to create streamlined, simplified sales taxes that would “take into consideration the interests of all businesses, Internet as well as bricks and mortar.”

Eizenstat is one of the highest ranking government officials to take a position on e-taxes to date, with the notable exception of President Bill Clinton, who has consistently opposed taxing the Internet.

Speaking at a conference of the Tax Executives Institute, Eizenstat said the current moratorium on Internet taxes should be made permanent “because taxes on Internet access would create an obstacle to Americans’ access to the Internet, and in turn, their ability to participate in electronic commerce.”

In Dallas, the Texas Retailers Association (TRA) called for a “level playing field” for traditional retailers who must pay sales taxes and online retailers who charge none. The group asserted that anything less could severely hurt traditional retailers.

“I consider this to be the most serious threat we’ve faced in the 34 years I’ve represented this industry,” said Mickey Moore, head of the Austin TRA. The group includes representatives from Wal-Mart, Tandy Radio Shack and a number of smaller retail organizations.

Consumers Voice Opposition to E-Taxes

Fueling the rancorous debate, a new survey from BizRate.com and the Association for Interactive Media (AIM) shows that nearly two-thirds of people who shop on the Internet say they would make fewer purchases from online merchants if they are taxed. Results of the survey of nearly 25,000 online consumers were handed over to the ACEC for its consideration.

More than 80 percent of online buyers said products downloaded over the Internet, including software and music, should not be subject to a sales tax. The findings show that more men than women object to Internet taxation and two-thirds of respondents want local tax systems to be simplified.

“The Biz-Rate.com data clearly shows that consumers are tax-conscious and are turning to lawmakers to simplify the current sales tax system,” said Ben Isaccson, executive director of AIM.