By Shafroth, Frank
Nation's Cities Weekly , Vol. 22, No. 14
"This is like trying to stuff a whole new system into an old, broken down one that no longer works," Joe Brooks, councilmember from Richmond, Va., and chair of NLC's Finance, Administration and Intergovernmental Relations (FAIR) Committee commented. "We need a new revenue system to ensure fairness and services in this new digital economy, instead of trying to fix the old one."
Brooks was referring to a consensus by the 64-member National Tax Association (NTA) project on electronic commerce and telecommunications that they would not be able to reach agreement on a final report with recommendations on how to simplify and apply state and local taxes on electronic commerce and telecommunications. Brooks and his colleague, Joe Hilson, councilmember from Hayward, California, represent NLC.
Instead, city, state, and business leaders in the joint project overwhelmingly approved a motion to draft a final report that would summarize areas of agreement and disagreement, after consensus on a much larger package appeared doomed to fall short of the 75 percent approval required under the project's by-laws.
The project is the first--and currently only--meaningful effort to try and reach agreement about how to apply state and local sales and other taxes to the rapidly exploding world of electronic commerce and the rapidly converging world of telecommunications and information technology. Under current Supreme Court rulings, electronic sales are taxable by state and local governments, but states may not require out of state or remote sellers to collect and remit the sales taxes to cities and states.
The resolution of what rules to apply matter not only to cities and towns in the United States, but to leaders in other countries around the world. "Your work here is under intense scrutiny around the globe," Treasury representative Joe Guttentag told the project members. "They want to know: how do we collect taxes on digitalized products, Internet sales? The United States will be the only nation in the OECD nations without a consumption or form of a national sales tax."
Thus, leaders from virtually every other industrialized country have the same stakes and concerns as municipal leaders in the U.S.--how to prevent erosion of a critical revenue base and discrimination against their own constituents. Consequently, Guttentag made clear that any solution reached in the U.S. would almost surely set a precedent for Europe, Canada, Australia, and the nation's other most critical trade partners.
The Internet Tax Commission
The NTA project's agreement became more important as efforts to fix the Congressionally appointed Internet Tax Commission continued to flounder. That commission, created under the Internet Tax Freedom Act passed last October, was supposed to hold its first meeting last December. It was to send its final report and recommendations on state and local taxation of electronic commerce and telecommunications to the President and Congress in June of 2000.
But in a sign of how significant the stakes are to some of the wealthiest corporations in the world, Congress selected 12 appointees proposed by the electronic commerce industry, including a registered lobbyist for Microsoft as the consumer representative. Congressional leaders selected only three from appointees nominated by states and local governments. The law required eight representatives from business and consumer representatives, including at least one representative of Main Street retailers and eight representatives of state and local governments.
While the White House and almost all key leaders in Congress have conceded that the current commission is inconsistent with the law, there has been no concerted leadership to fix it or to replace it with one that is as fair and balanced.
The NTA has been examining an expanded duty of out-of-state or electronic sellers to collect a uniform state and local sales and use tax, under a simplified and uniform state and local sales tax system not based on a physical presence requirement and alternatives for a bright line threshold for business activity tax nexus. …