A high-level group of technology industry and government leaders appointed by Congress to figure out how to tax online commerce voiced deep divisions today over whether electronic merchants should be required to collect state and local sales taxes at all--a disagreement that threatens to derail the group from presenting a consensus proposal on Capitol Hill.
Many members of the Advisory Commission on Electronic Commerce, which was set up last year, had indicated earlier they were in favor of finding a way to impose levies on Internet purchases similar to those placed on goods bought from traditional retailers.
But at the group's second meeting, some members, including the commission's chairman, Virginia Gov. James S. Gilmore III (R), indicated they are not convinced Internet purchases should be taxed.
"We should not just assume that taxing electronic commerce is the right thing to do," Gilmore said in an interview.
Business groups and politicians who represent states with a high concentration of Internet merchants--among them Virginia and California--argue that the lack of aggressive tax collection on electronic commerce has been a big reason for the recent boom in online shopping, which, they argue, has helped to fuel the country's recent economic boom.
But local and state governments worry that Internet businesses are getting a free ride.
Electronic merchants "see the Internet as a magical, mystical tool that they can use to make themselves a special class of merchants," said Randy Johnson, chairman of the Hennepin County, Minn., board of supervisors. "But local and state governments cannot run on an empty tank."
Under current law, a state or local government cannot require businesses without a physical presence within its borders to collect sales taxes; in 46 states, purchasers are supposed to pay the tax directly to state governments, but the vast majority of people do not.
Members of the 19-member commission include political leaders such as Utah Gov. Mike Leavitt (R) and Washington state Gov. Gary Locke (D), and technology executives such as AT&T Corp. Chairman C. Michael Armstrong, MCI WorldCom Inc. Vice Chairman John Sidgmore and America Online Inc. President Robert Pittman.
Most corporate representatives, however, appear to support the notion of collecting sales taxes on electronic purchases.
"We're not looking for special treatment," Sidgmore said. "We think electronic commerce has enough advantages that it doesn't need a sales tax break to flourish."
At the behest of Leavitt, the group today decided to ask state tax officials and other groups to propose ways to collect sales taxes that are simple, not burdensome to sellers, protect purchasers' privacy and do not impede the global competitiveness of American firms. The commission agreed to solicit the proposals despite the initial objections of Gilmore, California Board of Equalization Chairman Dean Andal and two others.
The group is scheduled to meet two more times, then deliver a proposal by April to Congress, which last year decided to impose a three-year moratorium on new Internet taxes.
But several members privately acknowledge that a consensus proposal appears unlikely, given the deep divisions. That would open the possibility that Congress would let the moratorium expire, they argue, allowing localities to enact inconsistent taxing rules that could hinder the evolution of electronic commerce.