Posted at 3:55 p.m. PST Monday, March 20, 2000

E-commerce panel endorses access tax ban, repeal of phone tax

DALLAS (AP) -- Congress should permanently ban taxes on access to the Internet and repeal a century-old telephone tax, and lawmakers should refrain for now from trying to apply state sales taxes to purchases online, a federal e-commerce panel decided Monday.

A majority of the 19-member Advisory Commission on Electronic Commerce endorsed a proposal from its business members that also would extend by five years a moratorium expiring in October 2001 on new Internet taxes. The proposal also would encourage state and local governments to simplify their sales tax systems.

``This is definitely a no-new-taxes-on-the-Internet proposal, but it's not a no-sales-taxes-ever proposal,'' said David Pottruck, president of Charles Schwab Corp. ``It's a starting point.''

The proposal also asks Congress to define what the Supreme Court meant in a 1993 ruling that requires a business based outside a state's borders to have a physical presence, or ``nexus,'' in the state before sales taxes apply to remote sellers -- catalog, Internet or telephone. The plan suggests that such things as Internet service providers and World Wide Web pages should never be considered a physical presence.

Several state and local government representatives on the panel objected to that section and to language exempting sale of digital products such as books and music, as well as their physical counterparts sold in stores.

Dallas Mayor Ron Kirk, a Democrat, called that ``a huge money grab for the business members of this commission.'' The panel includes top executives of AT&T, America Online, Time Warner and MCI Worldcom.

``I don't think business is at all grabbing for money,'' responded Robert Pittman, president and chief operating officer at AOL. ``It's less about taxes than it is about where you deploy your resources.''

The vote marked a defeat for most of the state and local officials on the commission, who wanted a clear statement supporting equal sales tax application to goods sold in stores or via the Internet. Business members said if states simplified their thousands of different sales tax rates, the tax eventually could apply to the Web.

``I don't think any form of distribution should have an advantage over any other form of distribution,'' said AT&T Chairman Michael Armstrong.

The panel planned another meeting Tuesday to wrap up its work, which is due April 21 in Congress. Given its freeform rules, it was possible that the commission could endorse one of several other positions, or that a two-thirds majority could be achieved in last-minute negotiations over sales taxes.

``We are awfully close to getting the required consensus,'' Kirk said.

In Monday's vote, the six business members gained support of the panel's chairman, Gov. Jim Gilmore, R-Va., and others who have taken fierce anti-tax positions throughout the panel's 10-month life.

All three Clinton administration members of the panel abstained on the business proposal, along with Govs. Gary Locke, D-Wash., and Mike Leavitt, R-Utah, and other local government officials. Kirk cast the lone vote against. The final vote was 11 in favor, one against and seven abstentions.

Aside from fears that increasing e-commerce will cut deeply into $150 billion in annual sales tax collections and threaten state and local services, opponents protested a ruling by Gilmore that the panel's final report to Congress did not have to gain a two-thirds vote to be forwarded. Gilmore said that while formal recommendations needed those 13 votes, Congress deserved to know the items that achieved simple majorities.

``We've just changed the rules at the 11th hour,'' Kirk said.

But House Speaker Dennis Hastert, R-Ill., and Senate Majority Leader Trent Lott, R-Miss., have said Congress would take a look at whatever the majority produces as long as it doesn't suggest tax increases.

``The best judgment is not always a consensus judgment,'' Lott said in a letter to Gilmore. ``I hop the commission's report will inform us of proposals that gain at least majority support.''

The Clinton administration also opposes outright repeal of the 3 percent telephone excise tax, which was imposed originally to finance the Spanish-American War in 1898. The cost of $52 billion over 10 years ``must be weighed against other important priorities'' in government, Deputy Treasury Secretary Stuart Eizenstat said Monday.

http://www.mercurycenter.com/svtech/news/breaking/merc/docs/033931.htm

-- Jen Bunker (jen@bunkergroup.com), March 20, 2000