Internet tax question won't be answered this week

A commission established by the US Congress to make recommendations on how Internet transactions should be taxed won't reach a consensus after two days of meetings being held here today and tomorrow, the committee's chairman said.

"It is not my intention to call for a vote on the policy options at this meeting," Virginia Governor James Gilmore, who is chair of the Advisory Commission on Electronic Commerce, said at the start of the conference.

Formed in 1998 when Congress established a three-year moratorium on Internet taxation, the commission was charged with making recommendations to the Congress by April 2000 as to how - and indeed whether - transactions over the Internet should be taxed.

Gilmore's pronouncement this afternoon reflects the pull of different agendas being pursued by various groups who have weighed in on the debate.

Among the proposals being examined here this week is one put forth by Utah Governor Michael Leavitt, which proposes a voluntary payment system in which a third party is appointed to collect and redistribute sales taxes.

Virginia Governor James Gilmore, meanwhile, advocates a permanent ban on Internet sales taxes.

Another proposal comes from a coalition of companies, including American Online, Microsoft and Wal-Mart Stores. The group, called the eCommerce Coalition, is calling for a more simplified tax code.

The question of what should be done about online sales taxes is among the most complicated questions facing Internet policy makers, Alan DeFend, the commission's director of administration and research, said.

Sales taxes in place throughout the US are often not enforced on Internet or catalogue sales. Nevertheless, there are as many as 7000 sales tax jurisdictions in the country, including those of states, counties and municipal governments, DeFend said.

"The moratorium (established by Congress in 1998) didn't say states can't continue to use sales taxes," he said. "States say you can tax companies that have a presence in your state. Does electronic presence count?" DeFend asked.

Adding to the complexity is the fact that any tax policy decided upon must take into account the global nature of the Internet. European leaders have indicated an interest in taxing Internet sales.

Representatives of the EU (European Union) and of the Organisation for Economic Cooperation and Development testified that they will integrate Internet commerce into their member-countries' value-added tax systems.

But the commission appears unlikely this week to reach a consensus on any one recommendation, said Stephen Feldhaus, a partner in the Washington law firm of Fulbright & Jaworski. "This is one stage in a long process," said Feldhaus, an expert in international tax and corporate law. "We have a long ways to go."

A new tax policy for the Internet may be several years away, according to the Utah governor. "This is not a mature debate yet," Leavitt said.

More information can be found on the Advisory Commission on Electronic Commerce's Web, at

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