- The Washington Times - Tuesday, March 21, 2000

DALLAS Virginia Gov. James S. Gilmore III's anti-Internet tax coalition yesterday furthered its bid to delay Internet taxation until 2006.
The Advisory Commission on Electronic Commerce, which the governor chairs, voted by a plurality to support several key Internet issues, including a moratorium on new sales taxes on items bought over the Internet.
"It's important to keep the new economy successful," said Theodore Waitt, a commission member who is president and chief executive of computer maker Gateway Inc.
The decision, reached in a contentious meeting in Dallas, is expected to carry weight even though it fell short of the 14 votes needed to make a formal recommendation to Congress.
Last night, supporters of the plan were meeting behind closed doors in an attempt to get three pro-tax members to change their votes and win a supermajority.
Debate centered on whether the plan would be good for consumers or lead to tax increases if state and local governments find themselves struggling to generate revenue lost due to the temporary ban on on-line sales taxes.
"We've tried to present a fair proposal," said David Pottruck, president and co-chief executive of Charles Schwab & Co. "This is definitely a no-new-taxes proposal. But it's not a no-taxes-ever proposal."
Mr. Pottruck was among five members of the Internet tax commission pushing the proposal, the subject of private meetings leading up to yesterday's vote. The 11-member block, which included Mr. Gilmore, was assured before the commission met.
Business lobbyists, who were strong supporters of the plan, saw their hope of gaining the two additional votes needed for a majority fade at the meeting's outset when three members of the Clinton administration said they would abstain from voting.
Andrew Pincus, general counsel for the U.S. Department of Commerce, said administration officials wouldn't vote for a plan that couldn't muster a majority.
The administration's chief concerns revolve around extending the sales-tax moratorium. The Internet Tax Freedom Act, the law that also created the tax commission, extends the moratorium to October 2001. It also requires the Internet tax commission to make a recommendation to Congress by April 21.
In addition to extending the moratorium on Internet sales taxes to October 2006, the winning proposal would repeal a 3 percent telecommunications excise tax originally enacted to help finance the 1898 Spanish-American War and permanently eliminate taxes on Internet access fees. Both steps are viewed as potentially helping to eliminate the "digital divide," the barrier that's seen as keeping poor people and minorities from purchasing computers and Internet access.
The plan also would prohibit taxes from being collected on sales of books, music, newspapers and magazines because all of those are available digitally and can be downloaded. That moratorium would remain in place at least through 2006.
The plan recommends that state and local governments simplify tax laws so that sales taxes could be applied easily if laws are approved later that force on-line retailers to collect the tax.
"We tried to create a middle ground," Mr. Pottruck said.
But they fell far short, said critics on the tax commission who favor imposing taxes on Internet sales.
The business lobby's plan could cost states a combined $20 billion in lost revenue, Utah Gov. Michael O. Leavitt said.
"That's today. As 15 percent, 20 percent or 25 percent of commerce moves to the Internet, that number will increase," the Republican governor said.
Dallas Mayor Ron Kirk, who voted with Mr. Leavitt, said his state's inability to collect sales taxes could lead to creation of an income tax in Texas.
"The business lobby's proposal would have an incredible impact in terms of dollars," said Mr. Kirk, a Democrat.
But state and local governments are awash in money and don't need sales-tax revenue from Internet sales, said commission member and Americans for Tax Reform President Grover Norquist.
At a press conference before the meeting, George Pieler of the National Tax Limitation Committee said state sales-tax revenue was up 7.3 percent during the fourth quarter of 1999 compared with the same three-month period in 1998.
The proposal also drew fire from bricks-and-mortar retailers who complained they had no representatives on the commission.
"With all due respect to Governor Gilmore, neither he nor his allies on the commission represent America," said Lisa Cowell, executive director of the E-Fairness Coalition.
The commission's disagreement yesterday wasn't limited to Internet taxation. The acrimonious meeting also led to several procedural disputes. Ultimately, the business lobby and Mr. Gilmore outmaneuvered their opponents and voted to send the proposal to Congress.
"It's unfortunate that we're seeing the same people throwing the same monkey wrenches into the process," said Paul Harris Sr., a Republican in the Virginia House of Delegates and a commission member who supported the business lobby's plan.

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