Where I Stand — Mike O’Callaghan: New attack on tax base

Tuesday, March 2, 2004 | 8:42 a.m.

GOV. KENNY GUINN wasn't blowing smoke last week when discussing the looming problem that Congress can create for future governors, county commissioners, mayors and taxpayers.

This month the U.S. Senate is considering S. 150, which has already been passed by the House of Representatives in the form of H.R. 49. If S. 150, as amended, becomes law it could cost state and local governments billions of dollars every year. The Senate version would cost Nevada at least $22 million annually but the House version, already passed, would take $52 million from our governments every year. These losses would increase every year as more people switch their telecommunications services to the Internet.

Sen. Lamar Alexander, R-Tenn., and five other former governors now serving in the Senate, see these bills as huge unfunded mandates on state and local governments. In a letter of warning to present-day governors, they call the bills "both wrong and unnecessary."

The first strong-arm move made by the Internet promoters was in 1998 when they gained passage of the Internet Tax Freedom Act (ITFA). This law put a moratorium on all state or local taxation of Internet access. This moratorium has already cost states billions of dollars in unpaid sales taxes for products sold over the Internet. All the promoters wanted was some breathing room for the new industry to survive. Since then the tax moratorium has been extended and is again being considered for an additional extension. As if this isn't enough, so they now want to make it permanent and expand the definition of tax-exempt features to include voice telecommunications services.

The original ITFA law had some important exceptions to protect state and local governments that Congress now wants to eliminate. These exceptions include:

Alexander, writing in The Hill newspaper, foresees the threat to state and local government and suggests: "There is a better solution. Sen. Tom Carper (D-Del.) and I will introduce a bill, The Internet Access Tax Ban Extension and Improvement Act, that would continue the current ban on state and local taxation of Internet access for two more years. We would create a level playing (field) for all high-speed Internet access providers. This would permit 27 states that now collect about $100 million annually in taxes on Internet access to continue to do so for two years. Among the co-sponsors of the legislation are Sens. (Dianne) Feinstein (D-Calif.), Bob Graham (D-Fla.), Ernest Hollings (D-S.C.), Kay Bailey Hutchison (R-Texas) and George Voinovich (R-Ohio).

"(Please note: this debate has nothing to do with other legislation that would make it possible for states to collect sales taxes from out-of-state retailers who sell via catalogs or the Internet.)"

Bite after bite, the federal government has eaten away at the tax base of state and local governments. S. 150 and H.R. 49 are the latest bites planned even as Congress passes other laws that demand many more dollars than the funds provided by Uncle Sam.

Nevada's governor has planned informational meetings with several local government leaders whose constituents will feel the bite. They all had better send a message to our congressional delegation.