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By Scott Bradner
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 in the 1998 Internet Tax Freedom Act, has been meeting for the last year on the subject of taxation of Internet-related commerce. They had their final public meeting in mid March and in the end was not able to agree to make specific recommendations to Congress on taxing Internet commerce. Their final report is not due until April and they will try again to reach some agreement before than but the discord shown in their 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 some way to recommend that some form of sales taxes apply to Internet transactions. It is rare indeed that a government commission with the type of mandate and makeup that this one had do not wind up deciding that taxes are a Good Thing. It just might be that the topic coming up in the presidential campaign made the topic too hot to think carefully about.
According to news reports the commission does seem ready to make some recommendations, not quite the innovative solutions that many people hoped but at least something. It looks like they will recommend extending the current moratorium on new Internet taxes another 5 years. Congress could, of course, prematurely terminate any such a moratorium whenever they wanted to. The commission in a timely move may also recommend that Congress repeal the 3% telephone-excise tax that was 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 to think about rethinking their Byzantine tax codes to set the stage for a single universal tax rate.
I still think its only a matter of time before Congress will figure out a way to tax Internet sales and, at the same time, force the catalogue sales people to collect taxes for all their sales rather than only where the company has 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.