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Division defines Internet tax panel

A clear stalemate leads some congressional leaders to urge an Internet tax panel to seek a general consensus on some key issues rather than a two-thirds majority. But other lawmakers are crying foul.

A clear stalemate has led some congressional leaders to urge an Internet tax panel to seek a general consensus on some key issues rather than a two-thirds majority. But other lawmakers are crying foul.

The Advisory Commission on Electronic Commerce, meeting today in Dallas, has been deeply divided on what to recommend to Congress on Internet taxation. Last week, some members said it was unlikely they would reach the two-thirds majority necessary for proposals to be included in their report to Congress.

The commission, created by the 1998 Internet Tax Freedom Act, is torn by political and business interests and overwhelmed with conflicting opinions. It is considering everything from taxing Internet sales and access to a 3 percent federal excise tax on telecommunications, which dates to the Spanish-American War.

Now congressional leaders are weighing in, with some saying the commission doesn't have to reach two-thirds vote and others insisting it does.

Senate Majority Leader Trent Lott, a Republican, said Friday that he would consider any proposal that had simple majority support. A similar letter was sent by Rep. Dick Armey (R-Texas).

"I would rather see from the commission a clear and unambiguous policy proposal that achieved majority support than a vague 'supermajority' recommendation that can be interpreted in many different ways here on Capital Hill," Lott wrote Virginia Gov. James Gilmore, the commission chairman. "The strength of your ideas will be persuasive, not the vote count."

Commission member Stan Sokul called the Lott letter "encouraging."

But Senate Minority Leader Tom Daschle said the commission was still required to reach a two-thirds agreement on proposals forwarded to Congress, despite published reports that the commission might try to reach a simple majority.

"We hope...the implication in The New York Times that the commission intends to ignore the law is erroneous," Daschle wrote in a letter signed by several other legislators, both Democrat and Republican.

As the meeting got under way, the legal counsel reminded the commission that it had to produce a report for Congress and that it couldn't call anything a formal recommendation unless it received two-thirds approval. It could include other proposals, however, such as ones passed by a simple majority.

Some commission members balked at the idea of sending proposals to Congress that didn't have two-thirds majority, and they questioned whether they could submit a report at all if they don't reach two-thirds support on any single proposal.

"At our meeting in Williamsburg, we ran into one obstruction after another," said commission member Paul Harris, a Virginia delegate. "It's unfortunate at our last meeting we're still seeing the same obstructions."

The commission is split primarily between a faction led by Gilmore and another led by Utah Gov. Mike Leavitt, both Republicans. While Gilmore's group has advocated banning all Internet-related taxes, Leavitt's crew has argued that states may have to cut off services to their residents if they are not allowed to tax the Internet. Both groups have five votes.

In a key vote today, the commission couldn't get a two-thirds majority on a proposal that was seen as a compromise between the Gilmore and Leavitt factions. If there was going to be a compromise, this was it: Gilmore would have conceded the possibility of taxes in the future and Leavitt would concede that taxes couldn't begin immediately. The proposal passed with a simple majority of 11 yes votes, 1 against and 7 abstaining.

The commission failed to reach two-thirds support for a series of votes today. Instead, Gilmore's group and a business coalition of six members, including AT&T chairman Michael Armstrong and Charles Schwab co-chief executive David Potruck, passed several proposals with 11 yes votes. The others, Leavitt's group and three Clinton administration appointees, consistently abstained from voting.

The business coalition proposal leaves open the possibility that states will be able to collect taxes on the bulk of e-commerce transactions. Gilmore's group supports it because states would have to simplify their structures before being allowed to tax remote sales.

If all that is needed is a simple majority, then several proposals are likely to pass, including the repeal of the excise tax, a ban on Internet access taxes, and a ban on taxing digital content such as photos and short films.

What the commission decides won't automatically become law; Congress must vote on the recommendation, and the president must sign it. But any proposal could influence the direction of Internet taxes.