Business Could Sway Internet Tax Board

FRAMINGHAM (03/17/2000) - The fate of a recommendation by the Advisory Commission on Electronic Commerce as to whether the federal government should impose taxes on the sale of goods and services over the Internet may rest with a pivotal bloc of six members who represent businesses.

The commission will hold its final meeting this week in Dallas. Any recommendation won't have an immediate impact on businesses. But it may be influential in shaping the online tax policy debate in Congress.

It's unlikely that the commission will muster the required two-thirds majority - or 13 out of 19 votes - on the thorniest issue before this group: whether mail and Internet retailers have to collect sales taxes in states where they don't have a physical presence.

But depending on how the business group votes, a majority may emerge. "I think members of Congress would be persuaded by a majority position," said Virginia Gov. James Gilmore, who heads the commission. Other commission members include state governors, federal officials and some special-interest group representatives.

What has become clear is that six businesses that help make up the commission could be pivotal. "If the six, by some chance, voted as a bloc, then they become the swing bloc," said Frank Schafroth, director of state and federal relations at the National Governors Association in Washington.

The business caucus, which includes America Online Inc., The Charles Schwab Corp., MCI WorldCom Inc., AT&T Corp., Time Warner Inc. and Gateway 2000 Inc., recently released a proposal that called for prohibitions against taxes on Internet access, an end to the 3 percent federal excise tax on telecommunications and a ban on taxes against digital goods. The group also called for an end to "disparate tax treatment of Main Street and Internet sellers" but didn't offer a proposal on how to make that happen.

The businesses on the commission are seen as being philosophically closer to the pro-tax government members on the commission.

One commission member, Stanley Sokul, agreed with Gilmore that the commission's report could still have an impact, even if it doesn't get two-thirds backing - especially if the three Clinton administration appointees back taxes on remote sellers. A Republican Congress might put little political weight on their vote, he said. "There's this little thing going on called the Gore presidential campaign," said Sokul, a consultant to the Association for Interactive Media in Washington.

The head of one big Internet seller - Michael Dell, the chairman and CEO of Dell Computer Corp. - said the tax problem is increasingly a global one, especially as more products are bought outside the U.S. "I think taxation systems for transactions on the Internet should not be any different than transactions in the physical world," said Dell.

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