Net tax recommendation may hinge on business bloc

FAIRFAX, Va. — The fate of a recommendation by the Advisory Commission on Electronic Commerce as to whether the federal government should impose taxes on the sale of goods and services over the Internet may rest with a pivotal bloc of six members representing businesses, who are being urged to support a policy that would lead to the collection of sales taxes from remote Internet sellers, according to the commission's chairman, Gov. James Gilmore of Virginia.

However, Gilmore, who spoke this morning at the 2000 Global Internet Summit at George Mason University, remained pessimistic that two-thirds — or 13 members of the 19-member commission — would be able to agree at its final meeting in Dallas next week on the thorniest issue before this group: whether remote Internet sellers should collect sales taxes.

But even if the commission fails to get a two-thirds backing on tax collections of remote sellers, Gilmore, who wants to prohibit sales-tax collections altogether, said a "majority position is quite possible, and I think members of Congress would be persuaded by a majority position."

Gilmore said there is "quite an effort" on the part of the protax supporters, a group led by Gov. Michael Leavitt of Utah, "to try to get them to swing out toward a protaxation policy."

The commission is roughly divided into three camps: seven members, including the three federal members, who are advocating remote collections; the six business caucus members, who recently released their own proposal on taxation; and five members — six if the chairman is counted — who oppose taxes.

What has become clear is that six businesses that help make up the commission could decide the outcome of the thorny process. "If the six, by some chance, voted as a block then they become the swing block," said Frank Schafroth, director of state and federal relations for the National Governors Association.

The business caucus, which includes America Online Inc., The Charles Schwab Corp., MCI WorldCom Inc., AT&T Corp., Time Warner Inc. and Gateway Inc., last month released a proposal that called for an end to the 3% federal excise tax on telecommunications, prohibitions against taxes on Internet access and a ban on taxes against digital goods. The groups also called for an end to "disparate tax treatment of Main Street and Internet sellers" but didn't offer a proposal on how to make that happen.

The businesses on the commission are seen as being philosophically closer to the pro-tax members on the commission. But it remains a question mark whether they would actually back such a position.

One commission member, Stanley Sokul, agreed with Gov. Gilmore that the commission's report could still have an impact even if it doesn't get two-thirds backing, especially if the three Clinton Administration appointees back taxes on remote sellers. A Republican Congress might put little political weight on their vote, he said. "There's this little thing going on called the Gore presidential campaign," Sokul added.

Gilmore said today that he believes the Clinton appointees will vote for a pro-tax position.

Last week, Deputy Treasury Secretary Stuart E. Eizenstat gave a indication of how the three federal members of the advisory commission might vote, but stressed the importance of the sales tax. "It is clear that any answer — short of repealing the sales tax and replacing it with another revenue stream to pay for police and education — has to involve simplification of the current sales tax systems — the same issue that the Supreme Court identified in its decision several years ago," said Eizenstat.

The head of one big Internet seller -- Michael Dell, the chairman and CEO of Dell Computer Corp. -- said tax problem is a global one. An increasing number of transactions, especially for high-priced consumer electronics, are occurring outside the country, said Dell, who also spoke at the Internet conference.

"I think taxation systems for transactions on the Internet should not be any different then transactions in the physical world," said Dell.

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