Tax question taxes Net commission By Charles Cooper, ZDNet News December 15, 1999 9:07 PM ET http://www.zdnet.com/pcweek/stories/news/0,4153,2410166,00.html SAN FRANCISCO -- To tax or not to tax the Internet -- that remains the question, even after two days of meetings here by the Advisory Commission on Electronic Commerce. Executives representing opposing sides of the brick-and-mortar vs. cyber debate made their cases to the 19-member, U.S. government-appointed commission in what at times represented a dialogue of the deaf. Although some committee members expressed optimism about ultimately finding common ground on the sales tax issue, the hard choices were put off until the group's next meeting in Dallas March 21 and 22. Charged with offering policy prescriptions to Congress on how to treat the issue of Internet taxes, the commission that met here accepted a working document that will be more fully discussed during the Dallas meeting. The draft committee report, which was submitted by America Online Inc.'s (NYSE: AOL) general counsel, George Vradenburg III, set forth three options for tax treatment of Internet access: * Extend the current moratorium against Internet taxes for five years, while eliminating so-called grandfather clauses that allow some states to levy certain fees; * A straight up-and-down ban against all Internet taxes; * Permit states and localities to levy taxes. The report also offered several alternative ideas on how to handle telephone taxes, including various plans to repeal up to 3 percent of the federal taxes on local and long-distance communications. Can you spell donnybrook? ------------------------- Earlier in the day, officials representing Wal-Mart, Federated Department Stores and mall developer Westfield America pressed the commission members to level the tax treatment applied to brick-and-mortar retailers and Internet companies alike. Otherwise, there would be "devastating social consequences," according to David Bullington, a Wal-Mart vice president. That set the table for a vigorous exchange later in the session between Bullington and commission Chairman James Gilmore, who is also the governor of Virginia and a critic of proposals to levy sales taxes on Internet companies. At one point, Bullington asserted that retail is the one business segment that doesn't receive any incentive for locating in a particular area. "I believe that's not correct," Gilmore countered. At another point in the discussion, Bullington locked horns with commission member Dean Andal after suggesting that the complexities of applying a sales tax to Internet companies was "overblown." When Andal, who is the chairman of California's Board of Equalization, disputed that assertion, Bullington shot back: "You'd know if you did your job." Don't tread on me ----------------- Each side made its share of apocalyptic appeals. Indeed, the magnitude of the dispute was put into sharp relief by similarly pointed comments from representatives of Dell Computer Corp. (Nasdaq: DELL), the American Electronics Association and Value America. They argued that e-commerce companies were already shouldering a substantial tax load and should not be penalized for innovation. Craig Winn, the founder of Value America, an online retailer, said the imposition of taxes on Internet companies would prevent the computer industry from helping to close the digital divide. "The first law of taxation is, if you want more of something, tax it less," he said. He added that it was impractical to convince "30,000 jurisdictions to agree." Even getting this one single jurisdiction to agree proved challenging. Agreeing to disagree -------------------- After testifying, Frank Julien, an executive with Federated Department Stores, said there was not a consensus within the commission to take a strong position "one way or the other." However, he held out hope that the commission might still be able to "recommend significant simplification" of the sales tax issues. "And that's something we all want," he said. Gateway Inc. (NYSE: GTW) Chairman Ted Waitt offered perhaps the best coda to conclude the day's proceedings. "The way things are shaping up, it looks like there's going to be a lot of offline work," he said.
