As the first meeting of the Advisory Commission on Electronic Commerce kicks into gear, Ernst & Young (EY) LLP has released a study suggesting that the increasing popularity of e-commerce has had little impact on the collection of sales and use taxes. The study, provocatively titled The Sky is Not Falling: Why State and Local Revenues Were Not Significantly Impacted by the Internet in 1998 has been published on the web. It estimates at $170m the sales and use taxes left uncollected because sales were made on the internet. This figure represents 0.1% of total state and local government sales and use tax collection. That finding is a boon to the private-sector and anti-taxation interests on the Advisory Commission, and a stumbling block to those who have argued that state and local revenues will suffer if net sales are left untaxed.
So who funded this useful study? EY credits the eCommerce Coalition, which it calls a broad-based national coalition dedicated to providing sound policy information on the taxation of electronic commerce. You might expect a broad-based national coalition to have its own web site, but this one does not. Searches on Google, Altavista and Lycos turned up nothing about it, while a search on Excite turned up only references to the Ernst & Young survey. EY goes on to say that the Coalition’s members include America Online Inc, Andersen Consulting LLP, Cisco Systems Inc, FirstData Corp, Intuit Inc, Microsoft Corp, Time Warner Inc and Wal-Mart Stores Inc. In other words, a study funded by a group of e-commerce merchants has found what the merchants have been arguing all along, which is that state and local governments are not missing out and that net taxes would be a bad thing.
Not everyone is convinced – state and local governments, for two. We don’t want to be an impediment to this technology, said Ron Kirk, mayor of Dallas and a member of the Commission, but government has a fundamental role in meeting people’s basic needs. We need a tax structure that allows government to do that. Government representatives like Kirk face formidable obstacles in conveying their point of view. There’s the problem of funding, for a start. When it established the Commission, Congress provided no money. Chairman Jim Gilmore, the governor of Virginia, asked each member to contribute up to $150,000 to meet the costs of running the Commission, but several members refused to pay. Now it looks as though the bulk of the funding will come from private sector members, AT&T, Gateway and MCI WorldCom. Even if it doesn’t affect the Commission’s findings, that private sector money is likely to affect public perception of those findings.
The money question is a rehash of the argument that led to the removal of Netscape Communications Corp chief executive Jim Barksdale from the Commission at the end of April. Barksdale was replaced by Delna Jones, the county commissioner of Washington County, Oregon, after the US Conference of Mayors and the National Association of Counties brought a lawsuit against the Commission demanding more local government representation and fewer members drawn from industry. Don’t be surprised if the Commission overcomes the funding obstacle only to be faced by a third such issue, and a fourth and a fifth. When powerful industry interests come into conflict with cash-strapped but determined public sector organizations, compromises are not easy to find – if they exist at all.
