Advisory Net tax panel can't agree on formal recommendation

The fate of taxes on Internet sales remains muddy as the federal advisory commission set up to study the issue proved unable to send a unified recommendation to Congress yesterday.

Needing a two-thirds majority vote for a recommendation, the Advisory Commission on Electronic Commerce, chaired by Virginia Gov. James Gilmore, split 10-8 on the official report of the committee. Divisions that formed at the onset of the committee two years ago remained through the last teleconference meeting. Utah Gov. Michael Leavitt sought to institute some sort of taxation on goods sold online, while Gilmore formed an alliance with executives from AT&T Corp., Time Warner Inc., America Online Inc. and Gateway Inc. to keep e-commerce tax free.

The report backed by Gilmore set forth the following recommendations:

  • Extend the current moratorium on new and discriminatory taxes targeted at the Internet for an additional five years (to 2006).

  • Permanently ban Internet access taxes.

  • Prohibit sales taxes on American consumers who purchase goods and services over the Internet.

  • Ban sales taxes on American consumers who purchase goods and services over the Internet, unless the seller has a physical presence in the city and/or state where the goods are shipped.

  • Ban sales taxes on the sale of digital goods and services.

  • Eliminate the federal telephone tax, which would constitute a $5 billion cut in federal revenue.

  • Bridge the so-called digital divide through targeted tax incentives for public and private partnerships and by authorizing states to use surplus welfare funds to provide needy families access to computers and the Internet.

  • Address consumer privacy issues on the Internet.

Gilmore pitched the report as a pro-business, pro-consumer windfall.

"We'll let the American people decide whether they like the report and how they feel about paying sales taxes on the Internet," he said.

Dissenting members of the commission are expected to release a separate report in early April. Leavitt has argued that traditional companies will be the ultimate losers as consumers flock to online shopping, and this will dry up state coffers because those online businesses pay little in sales tax.

In early March, Leavitt speculated that major retailers like Wal-Mart Stores Inc. in Bentonville, Ark., will pressure Congress to institute some form of retail taxation over the Internet.

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