By Stephen Cooper, CCH Washington Staff Writer, and John L. Duoba, Staff Writer, Business Owner's Toolkit

Virginia Gov. James Gilmore presented Congress with the Advisory Commission on Electronic Commerce's formal report on Internet taxation on April 12, 2000. Many of the ideas in the report represent the views of a majority of the commission, but only those proposals that garnered support from two-thirds of the commissioners are considered "formal findings and recommendations."

The two-thirds majority formally recommended proposals in the areas of closing the digital divide, ensuring Internet privacy and holding down international taxation. "It's a thorough and careful discussion including international issues, privacy issues and maybe even most importantly, efforts to close the digital divide so that we can make sure that everyone, of rich means and lesser means all across the United States, have an opportunity to have access to the Internet," said Gilmore.

A majority of the commissioners also proposed eliminating the 3 percent federal excise tax on telecommunications, extending the moratorium on Internet taxation and abolishing all grandfathered taxes on Internet access. The report also includes a discussion of proposals on sales and use taxes, business activity taxes, internet access, taxation of telecommunications services and providers and international taxes and tariffs.

House Speaker Dennis Hastert (R-Ill.) said the House will hold hearings on Internet tax moratorium legislation dealing with the moratorium on new taxes early this year. "We understand that if we're going to be a vibrant and new economy and lead the world in the whole Internet issue, in the electronic ability for people to communicate, that we need to be able to open the airways and the lines of communication and not stifle it," he said.

Senate Majority Leader Trent Lott (R-Miss.) said the Senate also planned to work on moratorium legislation this year. He noted that Senate Commerce Committee Chairman John McCain (R-Ariz.) is already discussing some of the report's proposals in his committee and plans to markup a bill soon.

But during a Commerce committee hearing on April 12, McCain said he had planned to include S. 2255, a bill to extend the Internet tax moratorium, in a markup on April 13, but opponents of the legislation have blocked his efforts. McCain said his legislation would extend the moratorium for five years, but it would not affect grandfathered tax provisions. "I want to emphasize, this is critical legislation; it is in the best interest of our nation's economic prosperity to bring it to the full Senate," he said.

Following are the three formal recommendations and the five majority proposals in the ACEC report submitted to Congress:

Formal Recommendations

Digital Divide

• Modify federal welfare guidelines to allow states to spend Temporary Assistance to Needy Families Program (TANF) surpluses to provide needy families access to and training in computers and the Internet.
• Encourage states and localities to forge partnerships with private technology companies to make computers and the Internet widely accessible for needy families, libraries, schools and community centers, as well as to train needy families how to use computers and the Internet. Incentives may include federal and state tax credits for participating private technology companies, and federal matching funds for state and local expenditures.
• Encourage the Administration and Congress to continue gathering research data for federal, state and local policymakers on measures that will lead to the reduction, and eventual elimination, of the Digital Divide.

Privacy

• Explore the privacy issues involved in the collection and administration of taxes on e-commerce, and the steps taken in systems developed to administer taxes on e-commerce, to safeguard and secure personal information.
• Take care in crafting any laws pertaining to online privacy (if any such laws are necessary), to preserve U.S. leadership in worldwide e-commerce.

International Taxes and Tariffs

• Support implementing and making permanent a standstill on tariffs as soon as possible.

Majority Proposals

Sales and Use Taxes

• For a period of five years, extend the current moratorium barring multiple and discriminatory taxes on e-commerce, and prohibit taxation of sales of digitized goods and products as well as their non-digitized counterparts.
• Clarify which factors would not establish a seller's physical presence in a state for purposes of determining whether there is a sufficient nexus with that state to impose sales tax collections.
• Encourage state and local governments to work with and through the National Conference of Commissioners on Uniform State Laws (NCCUSL) in drafting a uniform sales and use tax act that would simplify taxation policies as well as create and maintain parity of collection costs (net of vendor discounts) between remote sellers and comparable single-jurisdiction vendors that do not offer remote sales.
• Establish a new advisory commission responsible for oversight of the progress of NCCUSL's efforts to create a uniform sales and use tax act.

Business Activity Taxes

• Clarify the circumstances that determine whether a seller has sufficient nexus with a state to be required to pay and report business activity and income taxes to that state.

Internet Access

• Make permanent the current moratorium on any transaction taxes on the sale of Internet access, including taxes grandfathered under the Internet Tax Freedom Act.

Taxation of Telecommunications Services and Providers

• Eliminate the 3 percent federal excise tax on communications services.
• Eliminate excess tax burdens on telecommunications real, tangible and intangible property.
• Afford similar treatment of telecommunications infrastructure purchases in states that already exempt purchases of certain types of business equipment from sales and use taxes.
• Encourage state and local governments to work with and through NCCUSL in drafting a uniform telecommunications state and local excise tax act, within three years.

International Taxes and Tariffs

• Support the formal, permanent extension of the World Trade Organization's current moratorium on tariffs and duties for electronic transmissions.

Related items:

Most States Plan Tax Cuts in 2000

Experts Advocate Simpler Method of Taxing Electronic Commerce

Cumbersome Internet Sales Taxes Could Impose Disproportionate Burden

Senate Passes Internet Tax Freedom Bill