Lott Action Delays Hasty Vote on Internet Taxation Issue

Article excerpt

With little notice, no hearings, and without regard for the Unfunded Federal Mandates Reform Act, two House subcommittees last Thursday voted to adopt virtually identical, far-reaching, retroactive, preemptions of traditional state and local revenue authority.

In the midst of this, Senate Majority Leader Trent Lott (R-Miss.) interceded in the Senate to insist upon a more equitable process to respect the rights of cities and states. Because of Lott's action Senate consideration of similar legislation was delayed until it can be redrafted to address many of the concerns about equity raised by Lott, Sen. John McCain (R-Ariz.), and state and local leaders.

Internet industry leaders are trying to rush the legislation through Congress before the session ends near the end of the month. In contrast, and in contrast to the House, Lott believes this additional time will allow a discussion of tax "neutrality" for electronic commerce, which would mean the purchaser and the company would have the same tax responsibilities to cities and towns, regardless of the communications mode used.

The House action on the so-called Internet Tax Freedom Act would preempt traditional state and local authority to collect existing or future franchise fees, compensation, or taxes related to the purchase of goods or services on the Internet. The legislation would apply to current and future state and local revenues, but not to federal revenues. Neither subcommittee provided its members with any information with regard to the cost of the legislation to current state and local budgets, nor with any analysis about the impact on Main Street businesses.

NLC President Mark Schwartz thanked Lott for insisting upon a process that respects the rights of state and local governments, and urged all city and community leaders to oppose the House bill and insist upon compliance with the unfunded federal mandates relief act. Noting the absence of any evidence of discriminatory taxes, Schwartz urged strong opposition from every city and town to retroactive mandates and preemptions on state and local governments that benefited wealthy corporations at the expense and unfair treatment of local businesses and revenues:

"This legislation would have a profoundly negative impact on both governments and small businesses. Small businesses will suffer as a result of the tax advantage granted to Internet service providers. By offering protection to Internet-related businesses, Main Street businesses would be placed at a competitive disadvantage under this bill. While local merchants collect and pay their fair share of taxes which support vital state and local services, companies selling over the Internet would enjoy the advantages of these same services without providing any support. Furthermore, small businesses and other taxpayers would be forced to absorb a greater share of the tax burden to compensate for the state and local revenue that would be lost from the computer-related companies.

"The Senate Majority Leader is exactly right to insist upon making sure there is a specific appreciation and understanding of the potential impact before acting, that any federal preemption be prospective, not retroactive, and that any federal intrusion be fair to the merchants in our cities and towns instead of creating an unlevel playing field."

Rep. Rick White (R-Wash.) claimed the hurried House action was critical. Even he could cite little evidence of any discriminatory state or local taxes, White said Congress needed to act before "30,000 (state and local) taxing jurisdictions killed the golden goose of the Internet before it had a chance to flourish." Similarly, House bill author Rep. Chris Cox (R-Ca) told the subcommittee the "Internet is not burdened by excessive taxes<' but he warned that some state and local governments are looking to "shake the Net."

Despite the rushed process and voice votes, Reps. …