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Tech Industry

Deadline looms for Net tax proposals

A congressional panel receives a slew of new proposals to consider at its final meeting in Dallas next month.

For the congressional panel studying the Internet tax issue, it's crunch time.

Charged with delivering a proposal to Congress by April, the Advisory Commission on Electronic Commerce has received a slew of new proposals to consider at its final meeting in Dallas next month. In addition to addressing areas where the panel seems to have reached consensus, many of the proposals aim to resolve the basic split on the panel involving the taxation of Internet sales.

Perhaps the most surprising of the new proposals came from commission chairman James Gilmore, governor of Virginia. Gilmore has been the prime figure representing one side of the sales tax debate, advocating a permanent ban on taxes of remote retail sales made over the Internet.

But Gilmore appears ready to compromise on that ban. In addition to recommending a permanent ban on sales taxes, Gilmore proposes in a separate resolution a five-year moratorium on sales taxes.

"If we secure tax freedom on the Internet through 2006, (it) will become an entitlement for the American people and a political inevitability," Gilmore said in a statement. "No tax collector will be welcome on the Internet after 2006."

Gilmore's compromise plan is essentially a modified version of a proposal See Newsmaker: Building the Silicon Dominion put forward by a coalition of technology companies, represented on the panel by AOL president Robert Pittman, MCI vice chairman John Sidgmore and four other commissioners. Both plans propose that Congress extend the current moratorium on new Internet taxes for five more years and encourage state and local governments to use that time to simplify their tax rates and rules.

The idea of simplifying state sales taxes may be the centerpiece of a possible compromise. Opposing Gilmore in the sales tax debate have been commissioners who represent other state and local governments, such as Dallas Mayor Ron Kirk and Utah Gov. Michael Leavitt. Those commissioners and others have worried publicly that as e-commerce sales replace sales for traditional stores, state and local governments will see shrinking revenues and will have to cut back on essential services.

But in their own proposal to the commission, Kirk and Leavitt also advocated the idea of simplifying state and local sales taxes. "State and local governments are encouraged to work cooperatively with the National Conference of Commissioners on Uniform State Laws and others in the public and private sectors to draft model state legislation to implement a streamlined sales and use tax system," they wrote in their proposal.

Other proposals submitted to the commission include a ban on Internet access taxes, an elimination of the federal tax on telephone services, and a recommendation that Congress continue to study the so-called digital divide between citizens who have access to computers and the Internet and those who don't.

Commissioner Stan Sokul, representing the Association for Interactive Media, submitted a proposal that would recommend Congress examine the privacy issues surrounding any new sales tax collection scheme. In order to tax Internet sales, states will likely require consumers to report what they bought online, how much they spent and where they purchased their items.

"Proposals to increase state and local authority over the taxation of electronic commerce have important, yet largely unexplored, privacy ramifications," Sokul wrote in his proposal. "Technological advances will likely allow for increased tax collection efficiencies, but other important principles--such as increased exposure of individual privacy--must be balanced against what is technologically possible."

The flurry of new proposals came as the deadline approached for agenda items to be considered at the Dallas meeting. The rules of the commission dictate that all items to be considered needed to be submitted to the chairman 30 days before the meeting. Commissioners have until March 6 to amend or modify the proposals.