Mayors and Counties Won’t Drop Internet Tax Issue

Local communities are not yet ready to give up the issue of Internet taxation, despite a bone thrown recently by U.S. Senate Majority Leader Trent Lott.

At the U.S. Conference of Mayors Annual Meeting Monday in New Orleans, the mayors, their allies in the National Association of Counties and the International Council of Shopping Centers vowed to continue studying how Internet sales impact local storefront retailers and, therefore, communities.

The groups commissioned a study of electronic commerce, focusing on the potential fiscal impacts of tax-free Internet shopping. The study will analyze the loss of sales tax revenue from that market, apparently with the assumption that sales over the Internet take away from storefront sales, therefore resulting in lower sales tax revenue for municipalities, states and the federal government.

The study will further look at how the loss of these tax revenues impacts provision of local services, particularly public safety and education, which tend to galvanize local voters.

Numbers Remain Debatable

Many Internet sales studies, however, have suggested the ease and speed of Internet shopping may impact storefront sales somewhat, but in general the new marketplace has increased overall consumer spending, not simply transferred it to cyberspace.

A February Merrill Lynch & Co. report estimated that, of the $100 billion in Internet sales it predicts by 2003, 40 percent will come at the expense of mail order sales, not in-store sales. The financial analyst firm predicted storefront sales will grow at a rate of 3.5 percent over the next five years, lagging only slightly behind overall sales growth of 4 percent.

At the same time, Merrill Lynch said local shopping centers continue to thrive, thanks to new store openings and more creative leasing options. Retail chains do not appear to be worrying too much about Internet sales snuffing them out, Merrill Lynch said, noting the chain operators Merrill Lynch covers report plans to increase the number of stores by nearly 38 percent this year over last year’s total.

Senate Appeasement Not Enough

In addition to sunny numbers from analysts like Merrill Lynch, Senator Lott added a second local official to the Senate’s Advisory Commission on Electronic Commerce in late April to appease the mayor and county groups. The commission dropped former Netscape CEO James Barksdale to make room for Washington County, Oregon, Commissioner Delna Jones. In return for her appointment, the mayors and counties dropped a lawsuit attempting to stop the commission from meeting until it included one more local government official, as prescribed by the Internet Tax Freedom Act. Jones hails from a state with no sales tax, which Lott noted would bring a new perspective to the commission’s deliberations over issues such as taxation of online commerce revenues.

The panel’s first meeting, slated for June 21st, is the start of a year-long Congressional inquiry into the issue of Internet taxation. Nevertheless, the mayors and counties will conduct their own investigation at the same time. As recently as late May, non-federal politicians continued to decry the lack of a “level playing field” for storefront owners and Internet merchants.

Utah Governor Michael O. Leavitt argued in a recent address at the International Council of Shopping Centers annual convention that lower tax revenues could harm local government programs in the long run. Detroit Mayor Dennis Archer also tried to rally the shopping center operators behind an Internet sales tax. Archer noted that Michigan’s 6 percent sales tax provides fund that are “vital” for public education and other programs for the entire state.