At its second meeting in New York, September 14-15, the Advisory Commission on Electronic Commerce adopted a recommendation made by Utah Governor Michael Leavitt and seconded by Dallas Mayor Ron Kirk (L in photo) that calls on state and local officials to submit plans to show how state and local sales taxes can be easily applied to remote sales (sales across state lines) regardless of whether they are conducted over the Internet, telephone or mail-order.  The adoption of Leavitt's recommendation was viewed as a positive step in the right direction for state and local governments.  State and local officials will have until late November to develop and submit plans to the Commission for consideration at its next meeting scheduled for December 14 and 15 in San Francisco.  The Commission has until April 21 to submit recommendations to Congress on whether or not state and local sales taxes should be applied to electronic commerce and other forms of remote sales.

After hearing witnesses from the private sector discuss how state and local tax systems were too complicated to apply to electronic commerce, and witnesses from state and local governments testify that state and local governments could not afford to lose the revenue from tax-free Internet sales, Governor Leavitt told Commission members "we need to ask can we find a system that works?"  He proposed that the Commission ask governors and other interested parties to submit plans that show how a sales tax system can be applied to electronic commerce using criteria adopted by the Commission.  Commission member and MCI WorldCom Chief Operating Officer   John Sigmore agreed with Governor Leavitt and said the Commission needs to decide if there is a practical solution to the problem.

Governor Leavitt also suggested a list of criteria that state and local officials should follow in developing plans.  Although the criteria was not finalized, members agreed that plans should: radically simplify state and local sales tax systems, call for no new taxes, remove excessive burdens that make it difficult for merchants to collect sale taxes on remote sales, protect the privacy of the buyer, acknowledge the sovereignty of states, treat buyers in all states the same, and eliminate requirements for multiple state audits.

State and local officials will be given the opportunity to present their plans at the Commission meeting in December.  If the Commission sticks to a work plan urged by Commission member David Pottruck, president of Charles Schwab Corporation, plans will have to be 5 pages or less and have the support of three or four Commission members in order to be presented.   After the Commission reviews the plans in December, it will be have to make a decision on what it will recommend to Congress.  This could include no recommendation, a permanent moratorium on state and local sales taxes on electronic commerce or a simplified plan for applying state and local taxes to electronic commerce.

On the second day of the meeting, Commission Chairman and Virginia Governor James Gilmore, III made final his list of appointments to a 9-member subcommittee that will be responsible for drafting alternative recommendations after the Commission considers the plans presented by state and local officials.  The following members were appointed: Dean Andal, Vice Chairman, California Board of Equalization, who is an outspoken critic of applying state and local taxes to electronic commerce; Washington County (OR) Commissioner Delna Jones, who has been supportive of state and local concerns; Washington Governor Gary Locke, who favors applying state sales taxes equally to all forms of commerce; Time Warner, Inc. President Richard Parsons, who questions whether state and local sales taxes should be applied to electronic commerce; U.S. Department of Commerce General Counsel Andrew Pincus; America Online President Robert Pittman; Charles Schwab Corporation President David Pottruck, who believes state and local sales taxes must be simplified and equitably applied to all forms of commerce; Stanley Sokul, Independent Counsel,  Association for Interactive Media, a former staff member of New Hampshire Senator Judd Gregg, who sponsored legislation to impose a permanent moratorium on state and local taxes on Internet commerce; and Governor Gilmore, also an outspoken critic of taxing Internet sales.

In a September 17 letter to Governor Gilmore, Conference Executive Director J. Thomas Cochran expressed disappointment that Mayor Ron Kirk, the only mayor and city official on the 19-member Commission was not named to the drafting subcommittee.  In the letter, Cochran reminded Governor Gilmore that he had "...spoken frequently about achieving equity and balance in all of the work of the Commission.  That's why we don't understand your decision to appoint 3 state officials, 1 county official and no city official."  He urged Governor Gilmore to reconsider his decision and appoint Mayor Kirk to the subcommittee.

During the meeting, Commission members received a letter signed by 35 Republican members of Congress including House Majority Leader Richard Armey (TX) expressing concern that the Commission was spending too much time considering how to tax Internet commerce rather than whether it should be taxed at all.  The letter reminded the Commission that proposals to collect  taxes on Internet sales is not popular in Congress or among the American people, and that many members will oppose any new taxes on the Internet.

Commission members mostly ignored the letter.  Mayor Kirk reminded Commission members that state and local sales taxes are used to pay for a variety of critical public services including schools, roads, transportation, police and fire protection.  If sales taxes are not collected on electronic commerce, he said state and local governments will be forced to either increase other taxes to offset the revenue loss or significantly cut back on public services.

Hennepin County (MN) Board of Commissioners Chairman Randy Johnson and Richmond  Council member Joseph Brooks provided testimony on behalf of state and local governments on September 15.  Johnson urged that state and local governments be allowed to collect taxes on Internet sales to ensure a level playing field between Main Street merchants and those conducting business online.  "We should not create an elite class of merchants just because the transaction takes place on the Internet," he said.  Brooks told the Commission that he found it difficult to believe that the same high-tech firms that made it possible for people to "buy anything, anywhere, anytime online," are unable to develop the software to facilitate the collection of state and local sales taxes on those sales.   Both Johnson and Brooks summarized a statement of principles adopted by the Conference and other Big 7 state and local groups which the Commission was urged to follow in developing recommendations to Congress.  The full text of the Big 7 statement of principles and a fact sheet addressing a number of myths about collecting sales taxes over the Internet are included on pages 10 and 11.