Sales taxes may dominate Net commission hearings

SAN FRANCISCO--Internet taxation will take center stage here tomorrow, as a congressional panel charged with studying the issue begins a two-day meeting in a city that may have prospered as much as any other from e-commerce.

The Advisory Commission on Electronic Commerce is scheduled to discuss a number of tax-related proposals from groups representing both Internet and traditional businesses. As part of last year's Internet Tax Freedom Act, Congress charged the commission with examining Net tax issues and making a recommendation to legislators by next April.

The commission's mandate includes investigating taxes on Internet access and service providers and international taxes and tariffs. But its discussion of e-commerce sales taxes may produce the most sparks, pitting e-tailers against traditional retailers and state and local governments against consumer and anti-tax groups.

What's at stake is the slicing of the growing e-commerce pie. Forrester Research projects that online retail spending will grow from $20.2 billion this year to $184.5 billion, or 7 percent of total retail spending, in 2004.

To date, most e-commerce transactions have been free of sales taxes, as a result of a Supreme Court decision that exempts mail-order firms (and thus e-commerce companies) from collecting such taxes. The Internet Tax Freedom Act put in place a three-year ban on any new taxes aimed at just Internet companies or transactions.

=""> But traditional retailers and local governments see e-commerce as a huge threat. A recent study by Jupiter Communications indicates that much of e-commerce spending is coming at the expense of offline retailers.

That trend could mean declining revenues for local governments as well. Some governments officials say that they might be forced to slash services if they aren't allowed to collect sales taxes on online commerce.

With the stakes so high, the commission is expected to get an earful from all sides.

E-commerce companies argue that trying to collect sales taxes, which vary from jurisdiction to jurisdiction around the country, is impractical. One representative, Amazon spokesman Bill Curry, called them an "administrative nightmare."

Tom Steele, a tax attorney with San Francisco firm Morrison and Foerster, put the issue this way: "Imagine trying to keep track of 5,600 jurisdictions," he said. "When you get to all of these counties and states, with all the exemptions and differing statutes, it would be almost impossible."

But brick-and-mortar firms paint the issue as one of fairness.

Kemper Freeman owns the Bellevue Shopping mall in Bellevue, Wash., and is a member of the e-Fairness coalition, which represents a number of brick-and-mortar merchants and organizations such as Wal-Mart and the American Booksellers Association. Freeman said that the coalition doesn't support new taxes on e-commerce, but argues that the law should treat e-tailers the same as tradition merchants.

"We want to be a friend of e-commerce," Freeman said. "What we don't want is to be taxed differently when it comes to the sales tax."