LEGISLATION: No Internet taxes-yet?

Commission is leaning toward recommending a delay

The Advisory Committee on Electronic Commerce (ACEC) still has one more meeting to go before it makes its recommendations to Congress in April. But after a December meeting in San Francisco, committee members seemed to be leaning toward extending the current moratorium on new Internet taxes, at least temporarily.

“We’re pretty polarized in our views,” said John Sidgmore, an ACEC member and vice chairman of MCI WorldCom. “Why wouldn’t it be more prudent to punt, to delay the issue?”

Congress appointed the 19-member ACEC to recommend whether to tax Internet transactions, and if so, how. The committee was created as part of the 1998 Internet Tax Freedom Act, which also imposed a three-year moratorium on new ‘Net taxes.

Competing proposals

Since its previous meeting in New York in September, the ACEC received more than 35 taxation proposals from various organizations and companies. One plan, the Internet Tax Elimination Act, proposed by Rep. John Kasich (R-OH), suggested outright banning all Internet taxes, including sales taxes. ACEC chairman Gov. John Gilmore (R-VA), Republican congressional leaders, most Republican presidential candidates, much of the e-commerce community, and of course antitax groups favor this proposal.

“Permitting states to extend their sales taxes to Internet purchases could reduce the number of online buyers by a quarter and impose a new compliance burden on businesses,” testified Chris Wysocki, president of the Small Business Survival Committee, a 500,000-member watchdog group.

On the flip side, the National Governors Association (NGA), joined by cities, counties, and state legislatures, proposed to simplify the nation’s sales-tax procedure and set up a system to collect taxes on online purchases. The group wants the ACEC to endorse a voluntary e-commerce tax system in which all 50 states would adopt a single rate and a “trusted third party” would collect and distribute the money based on the location of the purchaser. Without a such a system, the NGA argued, state and local governments could be forced to raise income or property taxes to pay for public services, as Web sales would siphon taxable revenue from local retailers.

A third alternative, presented by panel member Dean Andal, chairman of the California Board of Equalization, is to allow states to tax Internet sales according to the 1992 Quill v. North Dakota Supreme Court decision, which requires remote sellers to collect sales taxes only in states where they have a physical presence.

The ACEC is scheduled to meet one final time, March 20 and 21 in Dallas, before it submits its recommendations to Congress.

Where the candidates stand on Internet taxation:


Texas governor George W. Bush: Supports the present tax moratorium but is waiting for the ACEC’s reports before making a final decision.

Businessman Steve Forbes: Staking his presidential ambitions on tax cuts, he endorses no taxes anywhere – but especially not in cyberspace.

Utah senator Orrin Hatch: Leans toward a tax-free Internet zone and is expected to play a key role in Congress next year when it comes to legislation dealing with this issue.

Arizona senator John McCain: Introduced the Internet Tax Elimination Act (S. 1611), which would make the ‘Net permanently tax-free.


Former New Jersey senator Bill Bradley: Declines to rule out the possibility of Internet taxes.

Vice President Al Gore: Supports the current moratorium but is waiting for the ACEC’s findings in April.