Internet Tax Panel Chief Denies Backing Compromise

Virginia Governor James Gilmore, the head of the Advisory Commission on Electronic Commerce (ACEC), said Wednesday afternoon that he is not backing off his opposition to taxation on the Internet as was widely reported.

Speaking at a luncheon in Boston, Massachusetts, Gilmore reiterated his strong opposition to Internet taxation. “I’m in a minority because of my views,” Gilmore reportedly said. “But the governors in favor of Internet taxes are wrong.”

It was reported in the Wall Street Journal that Gilmore was considering backing off his opposition to Internet taxation to support a plan that would extend the current moratorium on Internet taxes for an additional five years.

Many analysts, however, thought that Gilmore reaffirmed his strong support for Internet taxation to avoid having his position die a quick death in face of the growing support for the five-year moratorium.

Commission Sharply Divided on Taxation Issue

The Advisory Commission has been sharply divided on the issue of taxation. The opposition among panel members has been led by Republican Utah Governor Michael O. Leavitt, who proposed making it voluntary for states to set up a simplified sales tax system for remote sellers using technology run by a “trusted third party.”

America Online and Charles Schwab are among the businesses that urged Congress earlier this month to extend the current tax moratorium. While advocates on both sides of the issue criticized the proposal, it supposedly has been gaining momentum as a compromise position.

Moving Closer to Compromise?

Leavitt, along with Governor Gary Locke of Washington and Mayor Ron Kirk of Dallas, Texas — both Democrats — seem to be in agreement with the five-year moratorium on taxes, and are heavily pushing for states to simplify and unify their tax programs, which will erode opposition to Internet taxes even further.

Gilmore will still almost certainly submit a radical plan to Congress, asking for a permanent ban on taxes. However, should that plan falter, he reportedly said he was prepared to accept the new plan as a compromise.

While Gilmore has never before indicated a willingness to negotiate on the issue, analysts think that he reiterated his strong support not so much to rule out a compromise, but to take one more shot at a ban on Internet taxes before accepting the inevitable.

Support for Taxation Gaining Momentum

Over the last several weeks, support for Internet taxation has been growing — largely because it is viewed as inevitable.

Chief among Internet taxation supporters are local municipalities that rely heavily on sales taxes to fund city services and infrastructure maintenance and improvement. As more business moves to the Internet, the loss of sales tax revenues could adversely affect local economies.

Additionally, as reported this month in the E-Commerce Times, Forrester Research now predicts that Internet taxation is inevitable. The more vocal opponents to a permanent ban on taxation become, the more likely it is that the moratorium will either end or be modified, Forrester said.

While Gilmore said he was misinterpreted when he said he would consider an alternative proposal, many analysts believe that he will revisit his position when it becomes painfully obvious that Congress will not support a permanent ban on Internet taxes. After fighting the good fight, these analysts believe that he too will accept the inevitable.

Gilmore’s Approach to the Digital Divide

In addition to his proposal to ban Internet taxes, Gilmore is also circulating a measure that would call for states to use surplus federal welfare funds to provide Internet access for low-income communities.

The so-called “digital divide” has become a controversial issue, since it has become known that minorities and economically depressed communities are less likely to have Internet access than others.

Although both the federal government and individual entities have proposed plans for finite amounts of money to be appropriated for this purpose, Gilmore’s plan would provide some states with an ongoing source of revenue for more equitable Internet access.