In 1997, a small coalition met for the first time in Washington, DC, to discuss Internet taxation. As Thomas Santaniello, public policy manager for the Computing Technology Industry Association, recalls, "we could barely fill the room, interest was so small in the subject."
Fast forward to April 2000, the Cannon Caucus Room in the U.S. Capitol: The 11-month-old Advisory Commission on Electronic Commerce released its report and recommendations to Congress. "I was stunned-the room was packed," notes Santaniello. E-commerce retail sales had grown to $5.3 billion globally in the first quarter of 2000, according to figures from the U.S. Commerce Department.
Congress appointed the 19-member commission and forked over $1.4 million to study the e-commerce industry and answer key public-policy and taxation questions. For example, should online retailers have to collect sales tax in localities where they don't have a physical presence (or "nexus" in tax parlance)? Under present law (upheld by the Supreme Court in 1992), remote sellers via the Internet, catalogs, the telephone and TV aren't required to.
"The commission proposed that Congress "prohibit sales taxes on American consumers who purchase goods and services through interstate sales over the Internet by codifying clear 'nexus' rules."
The commission's roster of public and private figures included governors from Virginia, Utah and Washington; the chair of AT&T; the presidents of AOL and Time Warner; and MCI Worldcom's vice chair. Chaired by Virginia Governor James S. Gilmore (Virginia is home to more dotcom companies than almost any other state), the commission clearly favored the new economy. "Members of this commission have moved from a healthy e-tax debate to a responsible report that reflects the priorities of American taxpayers and consumers," Gilmore said.
They also proposed extending the 1998 "Internet Tax Freedom Act" for five years after its October 2001 expiration date. The act originally imposed a moratorium on new multiple and discretionary Internet taxes. The House passed the extension; the Senate is considering it. Industry observers think it maybe downgraded to an additional three-year moratorium. It's also been suggested that Congress permanently ban Internet access taxes.
"Congress is close to passing a couple of items from our report, but they're not close to settling the most controversial ones," says Stan Sokul, a commission member and an Internet industry consultant. One tax that might get the ax is the century-old 3 percent Federal Telecommunications Excise tax. A bill to repeal it passed the House in May and has moved to the Senate.
Ellen Paris is a Washington, DC, writer and former Forbes magazine staff writer.