Silicon Valley Symposium Optimistic on Net Taxes

SAN FRANCISCO (03/22/2000) - Despite a U.S. Congressional committee's failure to develop a recommendation this week on how and whether Internet sales should be taxed, there is hope for a consensus that may ultimately lead to a better national Net tax policy, a tax expert said today at a Silicon Valley symposium.

The Advisory Commission on Electronic Commerce on Monday in Dallas, Texas, failed to reach the two-thirds majority needed to make an official recommendation to the U.S. Congress to clarify Internet sales tax policy.

Instead, a deeply divided commission voted by a majority to endorse a five-year extension of the U.S. Internet Tax Freedom Act's moratorium on new Net taxes.

Nonetheless, the parties involved may eventually reach a compromise on the matter because businesses recognize the necessity of paying taxes on Net sales, Virginia Gates, a partner with PricewaterhouseCoopers LLP, said today at the Silicon Valley Network and Bay Area Economic Forum's Internet Tax Symposium, in Palo Alto, California.

Gates, a tax advisor to both Internet startups and large corporations, said most businesses are willing to pay Internet sales taxes on the goods they sell provided a standard, national Internet tax policy is in place. She attended the commission's meetings this week in Dallas.

This week in Dallas, members of the Advisory Commission voted 11 to 1 to extend the present tax moratorium, while seven other commission members, representing local and state governments and the Clinton Administration, abstained, protesting the lack of compromise in the commission's earlier discussions on Net taxation.

The U.S. government representatives have repeatedly said a more comprehensive Internet tax policy is needed to deal with the expected erosion of the tax base of traditional brick-and-mortar businesses.

The opposing parties have been unable to reach a consensus on the key issue of how to clarify when merchants are considered to have a physical presence, or "nexus," in a U.S. state and thereby are subject to state sales taxes.

"There is a general consensus among the corporations I'm talking to that remote sellers (businesses selling over the Internet to customers) will have to collect a tax in the future," tax advisor Gates said.

"Large corporations spend millions of (U.S.) dollars trying to keep up with the twists and turns of the tax code," Gates added. "The majority (of businesses) expect tax collection will be required by all remote sellers eventually, but they want to see simplification of the compliance requirement before all sellers have to collect."

Presently, there are more than 6,000 municipal, local and state tax jurisdictions that have created onerous tax requirements, which hit IT startup companies especially hard since they don't have the staff available to figure out tax codes, said Gates.

However, the five-year extension of the Net tax moratorium is a realistic time frame during which Congress could set up a simplified Internet tax system, according to Gates. "It will take two to three years to get past the (U.S.) presidential elections, and then for the leadership of House of Representatives and the U.S. Senate to be set," she said. "Then, we can make a real start."

The Advisory Commission on Electronic Commerce's Web site is at http://www.ecommercecommission.org/.

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