Internet Sales Tax Occupies Commission

The Advisory Commission on Electronic Commerce, formed in 1998 when Congress set a three-year moratorium on new Internet taxation, is charged with making recommendations on Internet tax policy to Congress by April 2000.

After two days of testimony, it was clear that the application of sales taxes to Internet commerce was the central issue facing the commission. But disagreement between online businesses and traditional brick-and-mortar retailers over use of the sales tax means a consensus is unlikely.

Currently, sales taxes in place throughout the U.S. are usually not enforced on Internet or catalog sales. Nevertheless, the participants struggled to outline a plan that would accommodate a national sales tax.

"This debate on a sales tax is going to take three or four years," said Utah Governor Michael Leavitt, a commission member. Leavitt and the National Governors Association advocated the application of a simplified sales tax applied to online companies.

Both traditional retailers and the states want the tax to set up a "level playing field," a phrase cited repeatedly. "The traditional retailers, who have to pay the sales taxes now, are going to get into this debate in a major way," Leavitt said.

The governors said a sales tax is needed to bolster state revenue as e-commerce grows. "Is e-commerce giving people [who operate online businesses] an unfair advantage at the expense of other forms of business?" asked South Dakota Gov. William Janklow.

Traditional retailers also weighed in. "E-commerce is growing so fast it does not need special treatment," said Peter Lowy, co-president of Westfield America Inc., owner of 38 shopping centers.

There are proposals for a permanent ban on sales taxes for online businesses, including one from Virginia Gov. James Gilmore, the commission's chairman. But other groups of online businesses advocate more debate and a simplification of sales taxes that would be applied to Internet transactions.

"The fundamental issue is that the sales tax system is overburdened," said Joseph Crosby, a spokesman for the eCommerce Coalition, a group of companies including American Online Inc., Microsoft Corp. and Wal-Mart Stores Inc. "Simplification is the key and the only solution to the issue."

More information can be found on the Advisory Commission on Electronic Commerce's Web site, at www.ecommercecommission.org.

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