RealTime IT News

Internet Tax Debate Continues

Final hearings are underway in Dallas this week where the Congressionally appointed Advisory Commission on Electronic Commerce is holding its final discussion about issues related to Internet, e-commerce and telecom taxation.

The commission, appointed by Congress, has until April 21 to submit any recommendations to federal legislators regarding e-taxes. However, a two-thirds majority of the 19-member panel must agree to any proposal before it can be sent to Capitol Hill.

On Monday, the commission failed to eradicate the deadlock over several key proposals under review. Eight commissioners Monday informed the panel that they would abstain or vote against the current proposals to prohibit the commission from attaining the votes necessary to make a formal proposal to Congress.

At issue is the business caucus proposal, which seeks to continue the current Internet tax moratorium for five years while states and municipalities establish a consistent e-commerce sales tax standard.

Lead by AT&T Corp. (T) Chairman C. Michael Armstrong, the business caucus also wants to permanently eliminate existing Internet access taxes and the 3 percent federal excise tax on telecommunications.

The plan also would exempt from taxation anything sold on the Internet in digital form, including downloadable computer software, an electronic book or musical recording. The exemption would also apply to tangible equivalents, meaning no sales taxes on sales of books, compact disks and movies.

In addition to Armstrong, the business coalition is comprised of six industry executives from Charles Schwab & Co. Inc., America Online Inc. (AOL), Gateway Inc. (GTW), MCI WorldCom Inc. (WCOM) and Time Warner Inc. (TWX).

Kent Johnson, KPMG LLP national partner in charge of e-tax solutions for state and local taxes, said 11 commissioners on the panel endorse the business caucus plan.

"Eight commissioners don't like it, 11 are in favor of the plan," Johnson said. "The eight commissioners announced they would abstain from voting, and debate ensued. The commission could still send its report to Congress, but it could not be considered findings or official recommendations."

Dallas Mayor Ron Kirk cast the sole vote against the business caucus proposal. Seven abstentions came from Utah Governor Michael Leavitt, Gener Lebrun, National Conference of Commissioners on Uniform State Laws former president, Washington Governor Gary Locke, Delna Jones, Washington County, Ore., commissioner and three Clinton Administration appointees.

Representing states interests in nabbing its fair share of sales taxes from Internet sales over the Web, the group of eight is pressing to establish a streamlined state sales tax system which would create a voluntary zero-burden sales tax collection system.

It's estimated that states receive about half of their funding from sales taxes to provide critical public services including road and highway improvements, public school funding and emergency services. At issue is when the states could tap e-commerce sales for necessary funding to keep their infrastructure financially sound.

KMPG's