District Mayor Anthony A. Williams has been chosen to lead a national panel that will seek ways to help U.S. cities and states capture tax revenue from companies that sell products over the Internet.
The panel, formed during the U.S. Conference of Mayors here last week, reflects officials' concern over how the rising popularity of tax-free electronic commerce threatens the bottom line for the more than 7,000 state and local governments that depend on sales taxes for revenue.
"The potential loss of millions of dollars in revenue to cities because more and more commerce is electronic is a key issue," said Williams (D). "What we need to do as cities is capitalize on technology as an emerging industry. . . . How can we leverage modern technology to help us in our efforts?"
Williams's colleagues at the conference said he was chosen to lead the panel because of his general interest in technology, which to this point has focused largely on making governments more efficient and helping to provide economic opportunities--particularly to those with lower income.
"Essentially, the mayor will be looking at how state and local governments can hold on to a significant revenue source," said Larry J. Jones, assistant executive director of the mayors' group. "If we don't figure it out, [such revenue streams] will all go up in smoke."
Jones said that although Internet shopping can be convenient and less expensive for consumers, "it puts mainstream merchants at a disadvantage, and it undermines the sales tax system." He said the mayors' group estimates that by 2004, America's local governments could lose as much as $11 billion a year in sales tax revenue as more and more consumers turn to the Internet.
Jones added that the mayors' conference plans to lobby Congress to pass a plan that would allow cities to collect sales tax from Internet sales but acknowledged that interstate--and international--sales over the Internet raise a range of questions about which governments should collect sales taxes, how much they should collect and how they should be paid by consumers.
Among other things, Williams and his panel will have to balance governments' desire to maintain revenue sources with concerns that imposing taxes on the Internet could stifle economic growth and create an administrative nightmare for retailers and governments. In the Washington area, Virginia officials also are examining such questions.
Sales taxes are the single largest source of revenue for most state and local governments, amounting to about $189 billion last year. Under a 1992 U.S. Supreme Court decision, a state cannot collect taxes from companies that operate outside its boundaries unless the company has some physical presence in that state, such as a store or warehouse.
State and local officials say they eventually will need to collect sales taxes on billions of dollars in Internet transactions to avoid serious erosions in services such as schools and fire protection.
"Every city and county in the country will be affected" financially by e-commerce, Jones said.
"It's important that Mayor Williams is heading up this task force because he is very well situated in Washington with his relationship with the [Clinton] administration" and Congress, said Aida M. Alvarez, head of U.S. Small Business Administration, who attended the mayors' conference.
A federal commission known as the National Advisory Commission on Electronic Commerce was created by last year's Internet Tax Freedom Act and charged with recommending to Congress what, if any, future taxes should be allowed on Internet access or sales.
The mayor arrived in Denver with a new laptop computer and two hand-held computers capable of transmitting e-mail, accessing the Internet, retrieving files and reviewing memos from his office. Williams said that while examining the e-commerce sales tax issue, he also will use whatever attention he gets as head of the mayors' panel to talk more forcefully about the need for low-income children and minority-owned small businesses to have access to computers. He added that a technology high school he wants to build east of the Anacostia River "is an example of how we're trying to get kids connected to the digital world."
"In our school system, we have kids from predominantly working-poor families, and they don't have access to technology," he said. "That's a 'digital divide,' and our kids are at a disadvantage."
Williams's e-commerce panel isn't scheduled to meet until January.
"I want to quickly get together with a sketch and concept for how we're going to proceed," Williams said. "Hopefully, we can get things underway in a month."
CAPTION: Mayor Anthony A. Williams was chosen to lead national panel.