Leading policy-maker proposes end to Net taxes

Virginia Gov. James Gilmore, chairman of Congress's blue-ribbon Advisory Commission on Electronic Commerce (ACEC), today called the elimination of Internet taxes a crucial step in strengthening the world economy.

"The Internet represents a marvelous tool of empowerment for people all over the world," Gilmore said in a statement accompanying a five-point proposal submitted to the commission today. "It is the most transforming technological development since the industrial revolution, and its growth must not be thwarted by taxation."

The Internet Tax Freedom Act--the legislation that created Gilmore's commission--prohibits new taxation for three years. But the law also "grandfathers" tax codes in effect before October 1, 1998, meaning the Net is far from a tax-free zone.

ACEC was set up by Congress last fall to study the effects of e-commerce on brick-and-mortar retail businesses, as well as government officials' ability to collect taxes on Net sales. Another part of the 19-member commission's job has been to ensure that the nation's 30,000 different tax jurisdictions don't pass unfair sanctions on Net access, services, and sales.

Gilmore, a Republican, made his proposal less than a month after ACEC released guidelines outlining 18 criteria for taxation treatments of e-commerce and remote sales. It could undermine what some have taken to be a growing consensus on allowing some e-commerce levies.

Some state and local officials want to maintain their ability to tax Net services. The National Governors Association, the U.S. Conference of Mayors, and other groups already are working on a uniform state law package to deal with the issue of Net taxation, which should be ready by December.

By contrast, Gilmore's proposal would:

•  eliminate all sales taxes from remote Internet-based sales of goods, services, and information to consumers;

•  eliminate the federal excise tax on local and long distance telephone service;

•  cede federal tax revenues to states to compensate them for any foregone sales taxes on Internet commerce that fund local government services;

•  permit each state to spend federal welfare dollars to purchase computers and Internet access for needy families;

•  and oppose international taxes and tariffs on U.S. e-commerce to maintain U.S. global competitiveness in software and Internet industries.

According to a statement, Gilmore's plan proposes immediate elimination of 2 percent of the 3 percent federal excise tax. It calls on the federal government to continue the tax at 1 percent for three years, at which time the federal excise tax will be completely abolished. That 1 percent would be used to compensate states and localities that simplify their state and local telephone taxes.