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Gov. Wilson: Keep Net taxes simple, low

The California governor agrees with a report from his advisory panel on Internet taxation.

MOUNTAIN VIEW, CALIFORNIA--With the clock ticking down on the three-year moratorium on Internet taxes, California Gov. Pete Wilson today urged federal and state lawmakers to keep taxes on Internet transactions simple, not duplicative, and low.

He also agreed with the recommendation of his Electronic Commerce Advisory Panel that Internet access charges should not be taxed even when the tax moratorium, passed by Congress earlier this year, expires in the year 2001.

"Our goal is stimulating e-commerce and preventing unwise regulation and taxation of e-commerce," Wilson said today after accepting the advisory group's report and signing an executive order tell state departments to expedite its implementation. The lame-duck Republican and said he would urge his successor as governor, Democrat Gray Davis, to give the report his early attention.

"My guess is that he will accept it eagerly," Wilson said.

Besides its tax recommendation, the report also addressed privacy and Consumer-protection issues, in both cases calling for no new regulations. But it did urge other states and the federal government to adopt anti-spam laws that California has already implemented..

Michael Boskin, a Stanford University economist who chaired the panel's taxation committee, outlined principles for taxing Internet transactions. Taxes should be neutral on how an item is sold, simple and easy to implement, and set nationally at as low a rate as possible.

Congressional leaders have appointed a number of Internet executives to an advisory group drafting rules on Internet taxes, which is due to report before the current moratorium expires. However, they are reportedly rethinking some appointments after complaints that the blue-ribbon panel is stacked in favor of the Internet industry.

Wilson's panel included 20 people, most of them executives with Internet companies, including Yahoo, Excite, eToys, Netscape Onsale and Buena Vista Internet Group, a Disney property.

The panel made a number of other recommendations that could prove controversial. For example, it urged a single, streamlined tax system not only for Internet sales but also for mail order, telemarketing, and TV home shopping. In the past, catalog and telemarketing firms have fought hard against having their transactions taxed.

In addition, the report raises the novel notion that digital goods of all kinds--software and music principally--might be exempt from sales taxes. Arguing fairness, it suggests all software might go untaxed if 35 percent of software is delivered electronically. Electronic delivery is not taxed in California, violating the principle of neutrality if substantial sales are delivered online.

Other parts of the report urge:

  • Letting the Federal Trade Commission continue to handle complaints that Web sites don't live up to their posted privacy policies.
  • Applying online privacy rules to the physical world and other media too.
  • Overhauling U.S. export controls on sale of strong encryption products overseas.
  • Reviewing California rules by industry and agency to be sure they do not discriminate against Internet companies.
  • Continuing to tax only tangible products, not services or digital products.
  • Lowering sales tax rates while making them broadly applicable.
  • Working with industry to promote an "National Internet Privacy Day" as an outreach effort early next year.