By Rachel Chalmers
The Clinton Administration’s Advisory Commission on Electronic Commerce held two days of meetings in San Francisco and, by all accounts, has little or nothing to show for it. The Commission was established to examine issues surrounding taxation of e- commerce during a three-year, Congress-imposed moratorium on new discriminatory taxes on online transactions. Representatives of the pro-tax and anti-tax lobbies made their case to the 19-member board, but observers describe the proceedings as a lot of talk and very little listening.
America Online Inc general counsel George Vradenburg has supplied the committee with a draft report, setting forth three options for tax treatment of internet commerce. The Commission could advise Congress to extend the current moratorium and to eliminate the grandfather clauses which allow certain pre-existing taxes to be levied. Alternatively, the Commission could recommend a permanent ban on net taxes of every kind. Finally, the Commission could ask Congress to lift the ban – the equivalent of declaring open season for states and localities to impose new taxes upon electronic businesses.
Brick-and-mortar businesses like Wal-Mart and Westfield America are infuriated that their net-based rivals have effectively gained tax exemption. Wal-Mart VP David Bullington warned of the devastating social consequences of permitting this state of affairs to continue. Westfield America co-president Peter Lowy added: E-commerce is growing so fast it doesn’t need preferential tax treatment. Dell Computer, the American Electronics Association and Value America took the opposite corner, saying that e-commerce companies already pay their fair share of taxes and that to penalize them for innovating would be unjust. Value America founder Craig Winn said: The first law of taxation is, if you want more of something, tax it less.
Charles Schwab and Gateway Computer argued for a third way, a simplification and clarification of existing tax on remote mail order businesses. We can recommend to Congress that they take it up as a very important issue, Schwab president David Pottruck suggested helpfully. The panel itself is deeply divided on the issues. Virginia governor James Gilmore, who chairs the commission, is known to be an advocate of abolishing tax on out- of-state sales via the net. Dean Andal, vice chair of the California Board of Equalization, wants to enforce a 1992 Supreme Court decision, Quill vs North Dakota, which held that taxing out-of-state merchants was tantamount to taxation without representation, and hence unconstitutional.
But Utah governor Michael Leavitt is in the moderates’ camp. To further confuse the issue, a group of US economists released a letter which read in part: There is no principled reason for a permanent exemption for electronic commerce. Electronic commerce should be taxed neither more nor less heavily than other commerce. So polarized is the commission that member John Sidgmore, vice chair of MCI WorldCom, told AP that it might make just as much sense to do nothing as to make the recommendations Congress expects on April 21 2000. Why wouldn’t it be more prudent to punt, to delay the issue? he asked. This is a real heart and soul issue, Schwab’s Pottruck agreed. It’s unlikely that we’re going to come up with a solution that can be implemented immediately. Right now, it seems unlikely that the commission can come up with anything at all.
