U.S. policy on Internet taxation probably won't change anytime soon. That's not because the commission studying the issue has agreed on the point. Rather, the commission is so mired in procedural squabbles and infighting that it's tough to see how a coherent set of recommendations will be drawn up by next April, when it is due to U.S. Congress.
Congress appointed the Advisory Commission on Electronic Commerce as part of the Internet Tax Freedom Act, passed last year, which set a three-year moratorium on Internet sales and use taxes. The commission is holding a series of meetings across the country to talk about an issue that strikes at the heart of the Internet Economy: whether and how e-commerce businesses should collect sales and use taxes levied by state and local governments.
But at a meeting here this week, the 19-member commission, composed of state and federal leaders as well as Internet industry executives, has been unable to agree on any policy positions, even on a preliminary basis.
"I don't sense any consensus around any issue," said one commission staff member.
The commission spent much of the day wrangling over whether tax codes could be simplified, and whether existing tax rules were unfair to e-commerce vendors, brick-and-mortar merchants, or both. It also grappled with a number of resolutions, including a controversial proposal to delegate some of its work to a group of state officials.
Before a midday lunch break, the commission's chairman, Governor James Gilmore III (Republican, Virginia) announced that he would have to end the meeting early so he could rush back to take charge of Virginia's preparations for Hurricane Floyd. After the break, Gilmore's fellow governor on the commission, Michael Leavitt (Republican, Utah), grabbed the reins and proposed farming out a feasibility study to a group of tax experts from 30 states.
"We need to figure out if we can make sales-tax (collection) work for the 21st century," Leavitt said. "If we can't... then I don't want to do it."
Leavitt said that the National Governors' Association, which he chairs, has already called a meeting of the states' group next week in Atlanta to hash out a plan to simplify the collection of sales and use taxes. Leavitt asked the commission to draw up a list of criteria for such a plan to forward to the group, which could then report back to the commission at its next meeting. Besides simplifying tax collection, any plan developed should stay away from calling for any new e-commerce tax legislation, Leavitt said.
Gilmore, who spent the meeting's lunch break dictating state-of-emergency declarations over the telephone to his staff back in Virginia, appeared exasperated with Leavitt's proposal.
"It sounds like we've got a different group right there that wants to compete with our commission," Gilmore said.
Commissioner Grover Norquist, the president of Americans for Tax Reform, questioned the wisdom of entrusting a study of the complex tax system to "the states who created it."
Leavitt retorted that his salary was paid by taxpayers, directly challenging Norquist's credentials as a taxpayer advocate. Another commissioner, Gene Lebrun, an attorney and former state legislator, came to Leavitt's defense, saying that "a lot of the mess we see comes from private interests lobbying for changes in the tax law."
Eventually, the commission voted to send a request to the states' group, but referred the final list of criteria to a drafting subcommittee of nine commission members, including Gilmore but not Leavitt.
In other developments during the meeting, Norquist pushed through a resolution supporting the Clinton administration's call for a permanent ban on tariffs on international e-commerce.
Commissioner Dean Andal, vice chairman of the California State Board of Equalization, introduced a dramatic resolution proposing a single nationwide standard that would tax online sales according to whether merchants have "substantial physical presences" in the taxing jurisdictions. Andal's resolution calls on Congress to codify a 1992 Supreme Court decision, Quill Corp. vs. North Dakota, which established the "physical presence" test. The commission did not vote on Andal's resolution.
The commission will meet again in December, in San Francisco, and in March, in Dallas, before reporting back to Congress next April.