No New Cybertaxes

...It was designed to go the other way...

...It doesn't seem fair...

...Then all transactions will be taxed, regardless of state lines...

...And what about the old "brick and mortar" [ ~ ' 8 1 " ~ I ~ businesses...

...That would almost certainly bring increased pressure from the pro4ax side...

...Catalogue sales, which some experts had predicted would virtually replace many types of retailing, now make up a bit less than two percent of all retail sales in the United States...

...It was all due to something that might be called Amazon.corn syndrome...

...The exact same arguments that we are hearing from state and local tax officials right now are the same predictions they made with mail order sales 30 years ago," says commission member Dean Andal, a conservative Republican who is the chief tax official for the state of California...

...And what happened with mail order sales is not much...

...Let's start with this egregious tax, three percent, and we start with the fact that telecom pays an average of14 percent tax in this country...

...No serious tax policy would say that you should tax something across the counter and not tax it when you sell it remotely...

...It's a responsible position...

...Underground filmmakers are rising from obscurity to fame through the meritocracy of the Web...

...Whatever they did, they were happy...

...Michael Leavitt, the Republican governor of Utah, was aggressively pro-tax, while James Gilmore, the Republican governor of Virginia and chairman of the commission, was just as aggressively anti-tax...

...And even when the commissioners got around to sales taxes, there were endless fights...

...Of course Congress and the tax commissioners aren't the only ones caught up in the Internet tax question...

...Representatives from both groups, as well as other local officials from around the country, brought their agenda to the newlyformed Internet tax commission...

...Representatives of the Clinton administration, while pro-tax, tried to appear neutral--and abstained from many votes--while representatives of Internet businesses were clearly hoping to get the best deal they could...

...For almost all sales in this country, the shipping costs are greater than the sales tax saved...

...I supported the Internet Tax Freedom Act, which President Clinton signed into law," Gore said earlier this year...

...Republicans oppose such taxes on principle and Democrats oppose them because they would worsen the divide...

...Taxes on local sales are collected for a purpose...

...Teom, T eir Teorn The group was made up of a roughly equal number of experts who were opposed to new taxes and those who supported them...

...That's because the Constitution forbids states from forcing other states to collect taxes...

...The Net eliminates boundaries," says Shafroth...

...They wanted to get well beyond the topic at hand, and the process fell apart when we got off the single issue...

...Still, groups like the National Governors' Association and the U.S...

...While Gore tries to maintain the appearance of neutralit),, his colleagues in the Clinton administration stand steadfastly in favor of a new sales tax...

...But they soon found themselves in a protracted fight over what the commission was supposed to do...

...When the commission began its work, its pro-tax members believed their main responsibility was to come up with a plan to deal with the sales tax issue...

...So far, Congress has not acted...

...We need to know all the facts:" Bush's reticence is also due to the fact that the state government of Texas, which does not have an income tax, is heavily dependent on sales tax revenue...

...I am committed to finding a solution to this issue that will allow the Internet and e-commerce to flourish but without stripping states and localities of the revenue they need to educate our children and fight crime...

...Even though it is cast in terms of the Net, the issue is in fact an old one...

...He says we should extend the current moratorium for five more years...

...Why she was there wasn't clear, but I~ no one in the crowd seemed to notice her as they sipped green apple martinis and watched video clips on laptops in the lounge...

...The pro-tax faction seemed intent on tying things up in procedural knots," says Dean Andal...

...As for Gore, one might expect the Net-enthusiastic vice president to have a lot to say, but he too has been uncharacteristically quiet...

...Shafroth and others are pushing for a system in which a third party, probably a private government contractor chosen for the job, would collect all sales taxes and remit them to the states...

...Hellerstein and many others argue that the law should be changed to allow states to collect taxes on all Internet purchases...

...They talked about shooting movies with digital cameras, editing them on computers, and distributing them on the Internet - no stu- ~ dios or financiers necessary...

...I figured we were stronger and better off if we started them off on the defensive...

...Online Film Festival...

...And if the moratorium is extended for a full five years--who knows...

...And that's just fine with the anti-tax forces...

...But it didn't...

...So in the final analysis, you buy the book at Amazon and pay no tax...

...For conservatives determined to block efforts to levy more taxes on the Net, it was very good news...

...The tactic left the "other team" sputtering in frustration...

...At this moment there's no need for any new taxes on e-commerce, and the widespread disagreement among those involved insures that there will be none...

...after all, who wouldn't choose to buy any variety of products in the comfort of his home, simply by picking up the phone and purchasing with a credit card...

...In its own way, the system is working quite well...

...But the vast majority of people never bother to do that, and the states usually make little or no effort to collect use taxes...

...While the rest of Los Angeles was getting ready for the Academy Awards ceremony, just a few nights away, these would-be Web auteurs had come to The Standard to meet reps from companies like ifilm.com, crushedplanet.com, bigstar.com, and vidnet.com-seemingly every startup involved in the online movie n business...

...Many experts believed that mail-order sales would eventually dwaffold-fashioned store sales...

...And in five years, the current Net hysteria might subside, as it did in the fight over taxing catalogue sales...

...Above the hotel's front desk, a young woman dressed only in her underwear slept on a clear plastic inflati able raft inside a human-sized terrarium...

...The conservatives wanted to expand it beyond sales taxes," 28 May 2o o o _9 The American Spectator says commission adviser Frank Shafroth, a pro-tax official at the National Governors' Association...

...But even if you pay no sales tax, ~11~] i ~ l ~ l ~ l ~ [ ~ you still owe something called a "use" tax...

...Its main recommendation was that the current moratorium on new taxes, now set to expire in October 2OOl, be extended five more years to 2006...

...asks Walter Hellerstein, a pro-tax expert at the University of Georgia law school and also an adviser to the tax commission...

...There were constant, constant procedural arguments over meaningless questions of what was what according to Robert's Rules of Order...

...The question went to the Supreme Court, which ruled in 1967 that for a company to collect sales taxes in a state it had to have an actual physical, business presence in that state--something it called a "taxable nexus...

...They might think it more convenient, they might like having greater selection than that available at a local store, but they aren't acting on the basis of taxes...

...The American Spectator - May ~o o o 29...

...And then again, it might not...

...Either way, we might look back at the tax debate and wonder what everyone was so worried about...

...For them, the moratorium is simply a .time during which officials can come up with a new, more enforceable tax system...

...What about the other taxes that already affect the Net...

...Beyond that, Gore has spent most of his time talking about the so-called digital divide that supposedly separates the Web-savvy middle class from Web-deprived poor minorities...

...What's the tax policy justification for that...

...A later decision clarified the issue a bit, saying that a company has to have property or employees in a state for it to be able to tax purchases...

...And at the end of March, the commission came through, voting after much study and debate to do...nothing...

...BYRON YORK is The American Spectator's senior writer...

...In late March, Deputy Treasury Secretary Stuart Eizenstat said the administration wants state and local governments to develop a simplified tax system so that all Internet sales can be taxed within two years...

...Arrayed around 26 May 2o o o _9 The American Spectator a large conference table in the Fairmont Hotel were the 19 members of the Advisory Commission on Electronic Commerce, more commonly known as the Internet tax commission...

...Conference of Mayors are calling for a new system of collecting sales taxes to "level the playing field...

...Businesses would be paying the tax without receiving the benefits...

...The Internet tax commission was, after all, a government commission, the time-honored device of Washington officials who want to appear to be taking action on an issue when in fact they have no desire to take any action at all...

...The Gore campaign did not respond to several calls requesting comment, but in the past, Gore has tried to walk carefully between his pro-tax Democratic constituency and consumers who don't want to pay taxes on Net purchases...

...It was supposed to go the other way...

...Those who wanted to tax mailThe American Spectator _9 May 2 o o o 27 order sales ran into the same constitutional roadblock that would later create Amazon.corn syndrome...

...Sometimes they stared up at the shag carpet that covered "~' the ceiling or wandered out to walk the blue Astrotuffaround the pool or lost themselves in one of those disco-era plexiglass surround-chairs hanging from chains near the couches...

...The problem of uncollected taxes was simply not big enough for Congress to overhaul the tax system...

...You have to re-think the tax system...

...Let the geezers go to the Oscars and Morton's and the Polo Lounge...

...In fact, the digital divide, real or not, unites Democrats and Republicans against new taxes on access to the Internet...

...The situation might be quite different then...

...This is the future-playing right here on every active-matrix screen at The Standard...

...What the commissioners decided might influence the futures of everyone from the digital moviemakers in Los I|] 11{|1 Angeles to the megamalls in the suburbs to the bookstore down the street...

...The commissioners' task was to come up with answers to some of the most contentious questions about the Net ~ ~ today: Should all e-commerce sales be taxed...

...But if you decide to buy the book from Amazon, you pay no sales tax at all, unless you live in Washington state, where the online retailer is located...

...So I said we must consider taxes on all parts of the Internet...

...The couldn't agree on what constituted a taxable nexus...

...Bean rose to prominence, their success raised the same tax question that is facing Net retailers today...

...If you live in, say, North Carolina, and buy a book from a local book shop, you pay a sales tax, probably 5 or 6 percent, which the store sends to the state government...

...If so, by whom...

...Should there be ~ [ ~ It] new rules for them, too...

...They know that if the current moratorium is extended for five more years, people will have five more years to become accustomed to paying no sales taxes on Internet purchases...

...In the past 3 ~ years, when catalogue retailers like L.L...

...In this case, North Caroli~ J na cannot force a Washington-based company to charge a sales tax and k~l~||j send it back to North Carolina...

...There's a revolution going on," the festival's director proclaimed...

...So that's where things stand...

...Obviously they failed to do what they were charged to do, which was achieve a consensus...

...What about that...

...The other team wanted to say, 'Let's tax electronic commerce,'" says Norquist...

...He wants to let the Gilmore Commission finish its work and see what its recommendations are," says Bush spokesman Scott McClellan...

...After all, local firms benefit from police and fire protection, road construction, waste collection, and other services provided by the taxing authority, so it is proper that they help cover the costs...

...Of course, others see it differently...

...IfI buy $1oo worth of books in Utah, I pay six percent tax...

...Although most people don't J [ ~ ' ~ [ l l ~ know it, the law requires that consumers report out-of-state pur[ ~ I|l[el...

...And mail-order catalogue companies...

...they are part of a deal between the people and the government...

...mm...

...Not all of the breaks were along party lines...

...They couldn't agree on how to simplify state tax systems...

...It ended in failure," says Shafroth...

...At least for now, there seems to be no reason for Congress to do anything...

...The only major issue that was widely supported was the move to extend the moratorium...

...The new economy, they believed, might do terrible damage to their old-economy sources of revenue...

...In addition, there is no clear evidence that untaxed ecommerce sales tend to discriminate against local businesses...

...Out on the presidential campaign trail, George W. Bush and AJ Gore are trying to stay away from the issue whenever possible...

...He might need a wider tax in the futUre, and is thus not inclined to make any unambiguous statements...

...Now we're facing a replay of the old controversy, this time about the Internet...

...Tido s In the last fete yea"rs, as e-commerce began to grow-and, perhaps more importantly, as experts began to predict that Internet sales would grow at an astonishing rate in the future-many officials in state and local governments became extremely worried...

...But the anti-tax conservatives had something else in mind...

...Should [ ~ ' - ~ access to the Net be taxed...

...Bean, for example, could collect taxes on purchases by residents of Maine, where it is headquartered, but not purchases by residents of other states, where Bean sends catalogues to residents but has no stores or other business facilities...

...None of that applies to remote e-commerce sales...

...If I buy the books from Amazon.corn, I pay $1z in shipping costs," says commission member Grover Norquist, head of Americans for Tax Reform (and also a TAS columnist...

...Right now, state and local governments and shopping mall people are panicked about what they think will happen with the Internet...

...You tax a book when you sell it over the counter and you don't tax it when you click on Amazon.com...

...chases to their state government I I ~ and pay the tax they would ~ 0 ~ owe if they had purchased the book in-state...

...Sales taxes aren't the only issue, they said...

...The new economy means you have to radically re-think the way governance works...

...Until now, Bush has used the tax commission as a means to avoid making any definitive statements...

...In a992 , another case, Quill v. North Dakota, brought the issue before the Supreme Court yet again, and the justices reaffirmed their earlier decision- but made it clear that Congress, if it wished, could pass a law making remote-sales taxes easier to collect...

...Just look at the century-old three percent tax on telecommunications, originally put in place to help finance the SpanishAmerican war...

...When a business pays income or remits sales taxes to the state in which it is located, there is a plausible linkage among the taxes paid, the services provided, and legislative representation," writes anti-tax expert Aaron Lukas in his Cato Institute study, A Primer on the Taxation of Electronic Commerce...

...At the same time, 1,25o miles away in Dallas, another part of the Internet's future was taking shape-one that is considerably less exciting, but potentially far more important...

...Moreover, local firms can make their voices heard in government through lobbying, voting, and membership in local interest groups, such as the Chamber of Commerce...

...They couldn't agree on whether new taxes would be necessary...

...There is another compelling reason for not changing the system...

...That would, in the favorite phrase of the protax forces, "level the playing field" between Internet retailers and their locally-based competitors...

...But what if Norquist is wrong and Net sales reach or exceed their current sky-high growth projections, taking billions of dollars away from traditional businesses...

...In the end, the commissioners couldn't agree about anything...

...Now the commission's recommendations are headed to Capitol Hill, where it is extremely unlikely that the election-year Congress will take any action at all...

...The "taxable nexus" exists in Maine but nowhere else...

...I want to wait five years because at the end of that time, the panic will have gone away," says Norquist...

...It's the same panic attack that happened zo years ago with the catalogue issue...

...Young men and women in narrow glasses and Capri pants and tail-out Comme des Garcons shirts chatted on their cell phones and brushed back their hair as they waited to sign up for the first annual Yahoo...

...There might be a consensus for some form of taxes, or, on the other hand, Interact sales might go the way of the catalogue...

...Big success," says Norquist...

...That means it is unlikely that consumers choose to buy something over the Net because it saves them money on taxes...

...The group was created by Congress in the Internet Tax Freedom Act of 1998, the law that established a three-year moratorium on new taxes on the Internet...