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Unexpected nonresult

By Scott Bradner
Network World, 04/03/00            

The Federal Advisory Commission on Electronic Commerce seems to have been an Epiphany-free zone. The problem of deciding how to, or how not to, apply taxes to Internet-based commerce now moves to Congress, an organization well-known for its ability to think logically.

The commission, set up through the 1998 Internet Tax Freedom Act, has been meeting for the past year on the subject of taxation of Internet-related commerce. The group had its final public meeting in mid-March, and in the end, it was not able to agree to make specific recommendations to Congress on taxing Internet commerce.

The commission's final report is not due until April, and the group will try again to reach some agreement before then. But the discord shown in its final meeting was impressive. I did not expect deep thinking on the part of this group, but I will admit to being a bit surprised that the commission did not figure out a way to recommend some form of sales taxes for Internet transactions. It is rare indeed for a government commission with the type of mandate and makeup this one had not to wind up deciding that taxes are a good thing. It just might be that the fact the topic came up in the presidential campaign made it too hot to think carefully about.

According to news reports, the commission seems ready to make some recommendations - not quite the innovative solutions many people hoped for but at least something. It looks like the group will recommend extending the moratorium on new Internet taxes another five years. Congress could, of course, prematurely terminate any such moratorium whenever it wants. The commission, in a timely move, may also recommend that Congress repeal the 3% telephone-excise tax instituted in 1898 to help pay for the Spanish-American War.

Finally, the commission is ready to bite the bullet and encourage state and local governments to start rethinking their Byzantine tax codes to set the stage for a single universal tax rate.

It's only a matter of time before Congress will come up with a way to tax Internet sales and, at the same time, force catalog retailers to collect taxes for all sales rather than only where the companies have a "substantial physical presence," as the Supreme Court put it a few years ago. I find it impossible to imagine that state and local governments will easily stand by and watch the erosion of a revenue stream that provides for as much as half their income or that brick-and-mortar stores will continue to tolerate what they see as unfair competition from e-tailers where customers don't have to pay taxes.

It should be fun, in a morbid sense, to watch Congress work on this issue in an election year.

Disclaimer: Harvard has its own school for morbid stuff, and the above idea of fun is my own.

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