December 15, 1999 7:30 PM PST

Net tax panel punts

SAN FRANCISCO--After a day and a half of meetings, a congressional panel charged with investigating Internet taxes decided not to decide.

The Advisory Commission on Electronic Commerce met here over the last two days, hearing and debating proposals on international taxes, state sales taxes and the so-called digital divide, said to separate those who have access to the Internet and those who don't.

Although commissioners indicated agreement on several issues, including a ban on online access taxes and the elimination of a 3 percent excise tax on telecommunications services, the panel elected to delay a vote on those issues until its March meeting in Dallas.

The commission, which is required to report to Congress on its findings in April, plans to present and vote on its final report at that meeting.

Several commissioners said they wanted to delay votes on Internet access taxes and the excise tax because they wanted to take some more time to study the issues, and didn't want to vote on the committee's proposals in a piecemeal fashion.

"We need to look at this in a holistic manner," committee member Ted Waitt, chairman and chief executive of PC manufacturer Gateway, said in an interview.

"We've got a lot to work through between now and Dallas," he added.

As expected, the commission spent much of its time debating sales taxes and the issue of "nexus." Under current law, companies that engage in remote sales either through e-commerce or mail-order sales must charge sales taxes only to customers of states in which the companies have nexus. Companies usually are considered to have nexus when they have a physical presence in a state, but questions have been raised about whether a Web page or an affiliate company would constitute nexus.

The issue is a big one for states and local governments, which fear losing revenue as consumers shift their spending to e-commerce. Led by commissioner Mike Leavitt, the Republican governor of Utah and the chairman of the National Governor's association, local and state bodies have proposed a system where consumers would pay sales tax on all transactions, whether they are online or off.

But e-commerce advocates, led by commission chairman James Gilmore, the Republican governor of Virginia, argue that complying with such a tax regime would prove difficult for small businesses because there are some 7,500 different jurisdictions around the country that levy their own sales tax. Gilmore has proposed that remote sales via e-commerce be free of sales taxes.

 

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