City Manager Challenges California Gov. on E-taxes

WASHINGTON (03/08/2000) - Responding to California Governor Gray Davis' recent "do no harm" remarks in favor of extending the moratorium on taxing Internet transactions, San Mateo, California's city manager sent a letter to the governor detailing at least two ways the lost tax dollars would hurt cities.

"For government to not require e-merchants to collect the same sales taxes as traditional businesses is simply not fair and is not necessary to the growth of e-commerce," Arne Croce wrote in the letter.

Croce also said that although the state is prospering from corporate income taxes generated by Internet-based businesses, local governments do not see any of that financial windfall. Davis said the state was "flush," thanks to the corporate taxes.

"It is increasingly clear that the 1930s state and local government funding system is ill-fitted to a 21st-century economy," Croce said. "If "California is flush,' the first priority of the state budget should be to fully restore the revenue taken from cities and counties in the early 1990s and to hold cities and counties harmless for the loss of sales tax on Internet sales."

A spokeswoman for Croce said the governor's office has not reacted to the letter yet, but a response is expected.

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