Tax Report is an Insult to Democracy

Commissions like the ACEC enable big corporations to legislate. When corporations write laws, the people no longer participate in government, and democracy ceases to exist.

by Patricia Fusco ISP-Planet Managing Editor [April 17, 2000]

Republican members of Congress warmly embraced the Advisory Commission on Electronic Commerce (ACEC) report on Internet taxes when it was officially delivered to Capitol Hill last week. Republican Virginia Governor James Gilmore chaired the ACEC and presented its final report to Congress.

It's no surprise that Microsoft-busting Democrats did not participate in the presentation ceremony, while Republicans celebrated another opportunity to anoint themselves as the high-tech friendly party this election year.

Governor Gilmore said he believes the ideas regarding tax cuts and tax reform reflected in the report would permit U.S. citizens to realize all of the social and economic benefits the Internet has to offer. Of course, Virginia is the corporate home America Online and many other major Internet-related companies, so the state is well poised to reap residual high-tech benefits from state income taxes and its population at large.

Senate Majority Leader Trent Lott (R-MS) and House Speaker Dennis Hastert (R-IL) were among those present to receive the controversial report from the ACEC.

States and Democrats Opposed to ACEC
Local, state and Clinton Administration appointees to the ACEC wrestled over Internet tax issues for nearly a year. State and local representatives opposed extending the current Internet sales tax moratorium because they feared that local government would continue to lose tax revenue.

Administration representatives including Commerce Department general counsel Andrew Pincus, Deputy Assistant Secretary international tax affairs Joseph Guttentag and counselor to the United States Trade Representative Robert Novick, said that "posturing took precedence over policy" and that the final report is based on a "flawed process, not a principled consensus."

Hastert said Congress would soon vote on extending the moratorium on new Internet taxes for another five years. The moratorium expires October 2001. Congress would also debate permanently banning Internet access charges and repealing the excise tax on telephone bills.

Even Republicans Divided
Republican support for the ACEC report and recommendations is not universal. Nineteen Republican State Governors among 36 state authorities that signed a letter sent to Congress rejecting the advisory panel report as an intrusion into state rights to raise revenues.

Currently, Internet retailers, just like catalog retailers, need to collect sales tax only if they have a store or warehouse in the purchaser's jurisdiction. E-commerce companies contend that the states and thousands of local taxing jurisdictions need to simplify sales tax guidelines before taxing Web retailers.

The majority of proposals in the report include suggestions on ways to define a business presence in a locality for tax purposes. But the report contains more than just e-tax proposals.

Recommendations
A "super majority" was attained on three key issues, which could be considered "formal recommendations" in the ACED report to Congress.

• First, they acknowledged that the "Digital Divide" is a real issue that must be addressed at all levels of government and industry.
• Second, that privacy must not be the victim of sales tax collection efforts.
• Third, bans on international taxes and tariffs should be made permanent at the earliest possible date.

A "simple majority" of the commissioners agreed that Internet commerce should not become the target of new taxes and the e-tax moratorium should be extended for five-years. They also recommended that tax policies regarding the telecom industry is cumbersome and needs to be revised, which includes phasing-out the 3 percent federal excise tax on services. Finally, they recommended that the Internet access tax moratorium be made permanent.

Furthermore, the "business caucus" encouraged Congress to have state and local governments work with and through the National Conference of Commissioners on Uniform State Laws (NCCUSL) to draft a uniform sales and use tax act that would simplify taxation policies. The group recommended that Congress establish a new advisory commission for oversight of the progress of NCCUSL's efforts.

This Report is Important
The ACEC report is expected to guide public policy on local, state, federal and international taxation over the next decade. It's a solid attempt to provide a sensible guide to issues regarding Internet taxation, but its shortcoming point to larger issues looming on the horizon of democratic theory.

Unfortunately, the industry-directed proposal is an affront to the principles of democracy in which the power is supposed to exercised directly by the people, not chairmen, CEOs, state representatives and tax gurus. The only thing that can come from big business telling big government how to act, are big taxes for the general public.

The ACES's proposal is biased in favor of clicks-and-mortar retailers while it penalizes bricks-and-mortar stores. If Congress really wants to "level the playing field" on sales taxes, it must usurp states rights and establish a nationwide sales tax and act as benevolent social agent distributing allocations to states, counties and localities.

The thought of the Administration or Congress taking such action this year would tantamount to electoral suicide. As e-commerce continues to shift the balance of power from traditional venues to new industries, so too must politics and politicians adjust their participatory practices if American democracy is to survive.

For details on the recommendations and voting, see page 2 of this article.