Governors say Congress shouldn't bar state Internet sales taxes

Tuesday, February 29th 2000, 12:00 am

By: News On 6

WASHINGTON (AP) -- Governors worried about damage that tax-free Internet commerce could do to their state budgets demanded Tuesday that Congress refrain from permanently outlawing state sales taxes on electronic purchases.

After a private meeting with most members of the Senate, Govs. Mike Leavitt, R-Utah, and Parris Glendening, D-Md., said "four out of five" members of the National Governors' Association oppose a total ban such as that advocated by Sen. John McCain of Arizona, a GOP presidential candidate.

"That would create havoc among states," Glendening said. Glendening said the federal government and the states have about two years to reach consensus on how to apply existing sales-tax laws to electronic commerce.

Without an agreement, governors fear that fast-moving technology will effectively impose a ban, threatening roughly $150 billion in tax revenue for services such as schools, roads and law enforcement.

The goal, Leavitt said, should be to create a uniform sales-tax system for sellers of all kinds: traditional retail stores, catalogs, Internet outlets and toll-free telephone peddlers. "We have to decide whether we create a permanent special privilege for one method of selling, or whether we create a level playing field," Leavitt said. "We believe we have to move to a level playing field. There are a lot of questions to answer as to how we get there."

Some governors and many members of Congress disagree. House Majority Leader Dick Armey, R-Texas, said Tuesday that lawmakers should have a "firm and clear" commitment to keeping the Internet free of taxes. "The Internet is the future of commerce," Armey said. "I want to assure the 55 million Americans who shop online that we are firmly committed to a tax-free Internet."

Later this year, Congress is likely to consider legislation extending or making permanent the current three-year moratorium on taxes that single out the Internet, such as those on access or digital downloads. Most governors agree with that moratorium, but what to do about sales taxes is another question.

Leavitt, chairman of the governors association, is also a member of a commission created by Congress to recommend future Internet tax policy. Its report is due in April, but there is no consensus about what to do.

In an effort to reach agreement, Leavitt said the governors association is revising its Internet sales-tax proposal in three key ways:

--Exempting small Internet sellers from collecting sales taxes until they reach a specified minimum business volume.

--Scrapping a proposal for creation of a "trusted third party "to collect and remit sales taxes. Instead, a way would be developed to adapt the current system.

--Extension of the moratorium on taxes that single out the Internet, which expires in October 2001.