U.S. Commission Leans Toward Extending Internet Tax Ban

Despite a sharp difference of opinion among its members, the Advisory Commission on Electronic Commerce (ACEC) appears headed toward a long-term extension of the current moratorium on Internet taxation.

Six companies with members on the commission are promoting a multi-year extension of the moratorium as the main component of a compromise, which would give state governments time to simplify their tax codes in order to tax interstate e-commerce. The current moratorium expires in October of 2001.

Still Not a Given

Some commission members on both sides of the issue, however, oppose certain parts of the new proposal, leaving the chances of a successful compromise in doubt. Virginia Governor James Gilmore, the chairman of the commission, said through a spokesman that no consensus has been reached as of yet.

Still, support for extending the moratorium seems to be building. Glover Norquist, an anti-taxation commission member, has reportedly stated that he might be willing to settle for a three-to-five year moratorium, since it would give opposition to e-commerce taxation more time to grow.

Backed by Heavyweights

The compromise proposal has gained momentum by receiving strong backing from such powerhouses as America Online, Inc., MCI WorldCom, Inc., Charles Schwab Corp., AT&T Corp., Time Warner, Inc. and Gateway, Inc..

Additionally, the compromise has gained credibility because it is similar to a proposed solution that emerged from a December meeting of the commission in San Francisco, California. At that meeting, a group of academics proposed that state and local governments be given the power to tax interstate e-commerce if they agree to radically simplify local consumption taxes.

Currently, states have no power to tax e-commerce unless an e-tailer has a physical presence in the same state where the buyer is located. With the movement toward brick-and-click stores that allow buyers to make Internet purchases but return products to local stores, many e-commerce transactions will be taxed with or without a moratorium.

The exemption stems from a 1992 Supreme Court decision declaring that it is an “unreasonable” burden on interstate commerce for states to force out-of-state retailers to collect fees, unless they have a physical presence in the state.

Additional details of the compromise proposal are likely to emerge next week when it is presented to the commission.