Net tax opponents prevail

Business representatives appointed by Congress prevailed by opposing taxes on remote sales over the Internet.

The losers included representatives of state and local governments and their retail supporters who want a method for applying sales taxes equally in cyberspace and on Main Street.

"Ultimately the commission became a political body instead of a public policy body," said David Cowling, a Dallas tax attorney who has attended all four hearings of the Advisory Commission on Electronic Commerce.

Utah Gov. Michael Leavitt, a Republican, attempted to win last-minute consensus at the Dallas hearing for a general policy document that he called a "view from 30,000 feet."

But in the end he got nowhere and later suggested that the question of Internet taxes will arise again, sooner than many expect.

"I think it will only take another Christmas season with c!
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ontinued growth in the online economy, and all the major retailers will storm Capitol Hill and utter the words level playing field."

Others said the matter won't become urgent until state and local governments notice that they are losing their tax base.

"The pain level for the states has not become unbearable," said Dr. Hasan Pirkul, dean of the school of management at the University of Texas at Dallas.

Among the most contentious exchanges among commission members were those regarding their procedural rules.

The rules matter because they determine what Congress will hear.

Under a strict reading, the 19-member commission was supposed to win a two-thirds majority in order to send specific findings or recommendations to Congress.

But it became apparent as soon as the group convened on Monday that two-thirds, or 13 of the 19 members, could not agree.

Instead, a simple majority -- led by such businesses as AT&T Corp., America Online Inc. and Charles Schwa!
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b, the brokerage -- agreed to write a report for Congress reflecting its views.

The majority report will reflect several specific positions on tax policy, including a repeal of the 3 percent federal telecommunications excise tax, a permanent ban on Internet access taxes, an exemption from sales taxes for digital products and, most important, continuation of the moratorium on taxing remote purchases in cyberspace into 2006.

Dallas Mayor Ron Kirk, a leader of the government group on the commission, said tax revenue lost from out-of-state Internet sales would have to be made up through a reduction in government services.

"Even in the cyberworld, you need police, roads and bright red fire engines."

Dr. Leon Kappelman, associate professor of computer business at the University of North Texas, called the moratorium "a tax subsidy for high-tech, communications and content companies" that are positioned to grow from Internet commerce.

But Virginia Gov. James S. Gilmore, a!
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Republican and chairman of the commission, rejected criticism that the report amounts to a $20 billion-a-year tax break for telecommunications, Internet and entertainment companies.

"Our report provides solid tax relief for working men and women in America, and allows people of modest means to access the Internet," Mr. Gilmore said.

Mr. Gilmore also defended the composition of the commission, which did not include any traditional brick-and-mortar retailers.

"It's impossible for every economic and social interest to be represented," he said, adding that retailers provided testimony.

Election-year politics crept into the debate when several Republicans began referring to the idea of taxing online sales as "a Gore tax," referring to Vice President Al Gore.

Others blamed President Clinton for blocking a compromise by instructing three federal agencies on the commission how to vote.

Even Treasury Secretary Lawrence Summers got into the act. While the Internet tax c!
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ommission met downstairs at the Fairmont Hotel, Dr. Summers was upstairs addressing a separate group on trade policy.

After his talk, Dr. Summers said the federal government's role was to be a "broker for the states," not their decision-maker.

Retailers that have a stake in both storefront and online sales said they were frustrated by the outcome of some 18 months of debate.

"It's been difficult for them to get out of their entrenched original positions to look at a compromise that helped business do what it needs to do and help government do what it needs to do," said Ron Parrish, a senior vice president for industry and government affairs at Tandy Corp., the owner of the Radio Shack chain of electronics stores.

For all its disagreement, the commission voted to delay a final vote on the wording of its report to Congress.

A teleconference roll call vote will be taken on a date to be decided by Mr. Gilmore but before an April 21 deadline.

"Everyone wanted to le!
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ave one last crack in the door," Mr. Gilmore said.

Staff writer Dianne Solis contributed to this report.