Net Taxation Proposal to ACEC Gathering Steam

WASHINGTON (03/16/2000) - An Internet taxation proposal backed by America Online Inc. (AOL) and other businesses will receive a majority vote next week when the Advisory Commission on Electronic Commerce (ACEC) convenes its final meeting in Dallas, two officials close to the negotiations said today.

The proposal put forth by the six business representatives on the 19-member commission has won the support of five other members, giving the proposal, which calls for a five-year extension of the current ban on new and discriminatory taxes on electronic-commerce transactions, a simple majority, said Mark Nebergall, president of the Software Finance and Tax Executives Council, at a briefing here today.

That's short of the 13 vote "super" majority that Congress said it would be looking for when it established the commission under the 1998 Internet Tax Freedom Act, but Nebergall said 11 votes is still a majority, and Congress would look favorably on it.

"We think it is extraordinary that a proposal has come up that has 11 votes behind it, a simple majority yes, not quite a super majority, but still a majority," Nebergall said. "We think that that in and of itself is evidence that the commission has been successful."

Under the terms that established the commission, Congress said 13 votes would be required in order for the commission to submit a formal report. The commission is still expected to release a report about three weeks after the meeting next week.

Online retailers and state and local tax authorities are watching the commission's movements closely because its recommendations could become the basis for legislation that would affect the taxation of online sales. However, Nebergall said Congress can do whatever it wants with the recommendations.

Currently, Internet sales are subject to the same taxation as catalog sales, and the moratorium, which some in Congress would like to see made permanent [See "Extension of Internet Tax Moratorium Proposed," Feb. 23] protects them against taxes that would treat electronic commerce differently.

In addition to extending the moratorium for five years, the business representatives' proposal would place a moratorium on sales and use tax of software and other digitized goods during the five-year period, said Ellen Fishbein, a lawyer for AOL who is also close to the commission's negotiations.

The proposal also would eliminate sales taxes collected by brick-and-mortar stores on the physical counterparts of digitized goods, including books and records "to further the principle of neutrality that all commission members have espoused," Fishbein said.

"We are trying to treat everybody equally and if we say that electronic digitized goods are not subject to a sales tax for five years we think the only thing to do is say that tangible goods that are exactly like (digitized goods) should also not be subject to a sales tax during that five-year period," Fishbein said.

Other key provisions of the business caucus proposal call for a permanent ban on taxation of access to the Internet and the elimination of a 3 percent federal excise tax on telecommunications services.

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