Fight shaping up over Web commerce tax

Wednesday, Jan. 12, 2000 | 10:42 a.m.

The commission that will make a recommendation to Congress on whether Internet transactions should be taxed is split on the issue.

But the commission's chairman, who led a Consumer Electronics Show session on how the Internet is changing society, had the support of the crowd when he told them he opposes any form of taxation on e-commerce.

Virginia Gov. Jim Gilmore said Internet communication was behind the political movement that led to the fall of the Berlin Wall and the Iron Curtain.

"America now must not build an Internet curtain," Gilmore told a group of about 500 that gathered for the session at the Las Vegas Hilton.

The tax issue is one of the thorniest facing the rapidly growing e-commerce industry. Gilmore believes taxes on Internet transactions would slow growth of online commerce.

Several organizations, including the National Governors Association, advocate taxing Internet transactions the same was as they occur in traditional stores. But one of the problems with permitting across-the-board taxation of goods sold on the Internet is that there are 30,000 different jurisdictions with tax policies in effect in cities, counties and states nationwide, Gilmore said.

In 1998, Congress approved the Internet Tax Freedom Act, which imposed a three-year moratorium on new Internet taxation. It also formed the 19-member Advisory Commission on Electronic Commerce to study e-commerce tax policy.

Gilmore, a longtime friend of the information technology industry, was appointed chairman of the commission, which has been directed to report its findings by April.

Last month, the commission met in San Francisco and announced that it had come to an agreement on at least one issue -- that a 3 percent federal excise tax on each consumer's local and long-distance telephone service should be scrapped. The tax was enacted in 1898 to fund the U.S. effort in the Spanish-American War.

Gilmore will advocate making the three-year Internet taxation ban permanent. But he'll be opposed by Utah Gov. Mike Leavitt, current chairman of the National Governors Association, which believes online transactions should be taxed at the same levels as Main Street businesses in fairness to the traditional brick-and-mortar locations.

The governors also fear that an increase in online companies would mean a corresponding drop in sales in traditional stores, which could lead to shortfalls in government budgets.