Technology companies step up opposition to internet tax

Technology companies are picking up the pace of their opposition to internet taxes as a panel appointed by Congress prepares to hold its final hearing in Dallas this month.

Some governors and mayors are pushing for internet sales taxes, fearing that their tax base will erode as internet commerce grows. It’s an important issue for schools, too, since they stand to gain from the increased state revenues that internet taxes would provide.

Yet the question remains whether schools would be hurt more if internet growth and development were thwarted by such a tax. In an informal poll taken on the eSchool News web site, 75 percent of readers said they oppose an internet sales tax–even if most of the revenues would be spent on education.

The issue has moved up in prominence on the presidential campaign trail as well. In late January, Senate Republican John McCain pledged to forever ban taxes on the internet and dared Texas Gov. George W. Bush to do the same. Industry groups mobilizing against an internet sales tax were delighted.

“[The tax] really would stop this growing internet sales economy dead in its tracks,” said Caroline Graves Hurley, director of tax policy for the American Electronics Association.

Large technology companies that operate nationwide have larger staffs dedicated to complying with and paying state taxes than federal taxes, she said.

“There’s no way little companies who sell over the internet can do that,” Ms. Hurley said. “They don’t have the resources that Hewlett-Packard does.”

Michael Turner, vice president of marketing for Clear Commerce, an Austin company that makes software to process internet purchases, cited estimates that web sales equal less than half of 1 percent of all sales. He said an internet sales tax would be ineffective.

“A lot of merchants are marking five transactions a month” on the internet, Turner said. “You’re going to have people sending in [tax payments of] $12 a month.” He said governments would lose money handling lots of small-dollar tax payments.

Dallas Mayor Ron Kirk has emerged as a leading proponent of an internet sales tax. Kirk is a member of the federal Advisory Commission on Electronic Commerce, which is due to hold a two-day hearing in March in Dallas, then report its recommendations to Congress.

Kirk said many states get almost half their revenue from sales taxes, and the boom in internet retailing could siphon tax dollars used to buy fire engines, patch potholes–and fund schools. Texas might need an income tax to offset lost sales tax revenue, he said.

Kirk also argues there’s a fairness issue involved. Affluent people, with computers and internet access accounts, will be able to avoid sales taxes by shopping online, he said, while poor people without computers will have to pay sales taxes to support basic city services.

“We believe goods bought and sold over the internet ought to be treated the same as goods bought on Main Street,” he said.

The National Governors Association, cities, counties, and state legislatures want the advisory commission to endorse a voluntary internet sales tax system in which all states would adopt a single rate and a third party–such as credit card companies–would calculate, collect, and distribute the tax based on where the purchaser lives.

Another commission member, former U.S. Senate tax aide Stanley Sokul, told a Dallas audience Jan. 20 that an internet sales tax would dangerously extend the taxing power of states. He said Congress should wait to see whether internet commerce grows before applying a decades-old sales tax approach to the internet.

Some educators think internet taxes are inevitable, for better or worse.

“To me, it’s not an issue of if we will [have an internet tax], it’s how will that [tax] be assessed–and how will the revenues be distributed,” said Bob Moore, director of instructional technology for the Blue Valley School District in Overland Park, Kan.

“I don’t think we can apply the same rules for internet commerce” as we do for brick-and-mortar store purchases, Moore added. Assuming such a tax is inevitable, he said, the question for lawmakers to decide would be who gets the revenue from online sales–the state (and therefore the schools) where the purchase takes place, or the one where the company is located?

Kirk and Sokul agree that the commission probably will urge Congress to ban taxes on internet access and international internet tariffs–but fail to agree on the divisive sales tax issue.

A three-year congressional ban on internet sales taxes expires in October 2001.


Advisory Commission on Electronic Commerce

American Electronics Association

National Governors Association

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