Electronic Commerce Commission Lays Foundation for Sales Tax Solution

WILLIAMSBURG, Va. -- With just 10 months left before it must submit a report to Congress on whether and how to apply state and local sales taxes to online purchases, the Advisory Commission on Electronic Commerce finally got off to a slow but solid start during its inaugural two-day meeting in Williamsburg, Va., this week.

Although no specific proposals were discussed, members appeared unanimous in their call for a solution that was fair, technologically neutral and took all concerns into consideration.

"Only after hearing the input of all affected parties can our proposals possibly be legitimate," commission chairman and Virginia Gov. James Gilmore said. "This is vital for us developing a consensus. And only with a consensus will we be successful and will Congress value our recommendations."

The commission, which is made up of federal, state and local officials, business leaders and members of nonprofit industry associations, was created last year as part of the Internet Tax Freedom Act, which placed a moratorium on collecting sales tax on online commerce for three years.

During that time, the commission must figure out if it is possible to apply an existing tax infrastructure based on geographic boundaries to a medium without boundaries. Alternatively, the commission could come up with a whole new taxing scheme. Some industry observers have even suggested a "no tax " plan, arguing that electronic commerce will cause so much growth in property and income taxes that it will offset any revenue losses brought about by a sales tax exemption.

But during the commission's first meeting, it became clear that, like society at large, the participating members have competing interests at stake. "We in the cities don't want to be an impediment to the growth of this important industry, but we also do not want to remove a major source of revenue that provides our citizens with basic everyday services like education and law enforcement," said Dallas Mayor Ron Kirk, who noted that sales tax provides his city with nearly half of its revenue. "It is neither cynical nor emotional to raise the issue of what effect the buying and selling of goods over the Internet is going to have on one of our strongest sources of revenue."

Business leaders on the commission seemed to be less concerned with how a tax might impede the proliferation of the industry than in coming up with a tax plan that would be easier to administer than they currently experience.

"Tax advantages are not what's going to allow the Internet to grow," said John Sidgmore, vice chairman and chief operating officer for MCI WorldCom. "We don't believe it's feasible or fair to tax one form of commerce differently than others, but whether or not we want to collect sales tax for 30,000 different taxing jurisdictions is another matter altogether."

Commission members spent much of the day fact-finding about how quickly the digital economy is growing and to what degree electronic commerce is affecting state and local revenues. They also listened to experts discuss issues of sales tax, cybercommerce and the global economy.

The commission also set up its remaining schedule of meetings: Sept. 14-15 in New York City, Dec. 14-15 in San Francisco and March 20-21 in Dallas. The panel must report its findings and recommendations to Congress by April 2000.

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