Presidential Candidates Largely Mum On Internet Taxation

With the political debate over whether to tax Internet commerce heating up, one group of spotlight-seeking politicians is, for the most part, ducking the issue. The only presidential candidates who have taken a public position on this critical question, which will surely be atop the legislative agenda during the next presidents first year in office, are Arizona Sen. John McCain and publisher Steve Forbes.

The Internet Tax Freedom Act of 1998 imposed a three-year moratorium on new Internet transaction and access taxes through October 2001. The Advisory Commission on Electronic Commerce, created by the same act, is to report its recommendations by April of 2000, but hardly anyone expects Congress to deal with the subject so close to the general elections.

That hasn’t deterred the outspoken McCain, who was one of the main architects of Internet Tax Freedom Act. On September 22, McCain introduced legislation amending the law to make the taxation moratorium permanent, clarify that sales and use taxes on e-commerce transactions are prohibited and direct U.S. trade representatives to advocate a “worldwide tax-free zone” for the Internet.

“We are at a critical juncture. We can choose to hamper the growth of this vital medium by imposing old ways of thinking that just do not apply. Or we can seek new principles to govern in this new era of ubiquitous access to information, people, products and services,” McCain said in a statement.

The third part of the McCain bill keeping the Internet free of international tariffs–is the least controversial question in the Internet taxation debate. All of the other candidates (and the Clinton administration) also advocate a “duty-free, global free trading zone.”

Republican rival Steve Forbes, the billionaire publisher, has endorsed a proposal by Virginia Gov. James Gilmore to make permanent the ban on any new domestic or international Internet taxes.

“The Advisory Commission on Electronic Commerce is moving in the right direction. The members, lead by Governor Gilmore, seem to understand that we need to remove all barriers to the burgeoning e-commerce industry,” Forbes said.

Texas Gov. George W. Bush, the Republican frontrunner, has not yet taken a position on taxing Internet commerce, a campaign spokesman said. As a governor, Bush is presumably concerned about protecting states’ rights and revenue. As a Republican candidate, though, it is politically dangerous to endorse any new taxes, or the imposition of existing sales taxes on a medium so far kept tax-free.

Bush supports the current three-year moratorium and will look at the recommendations of the Advisory Commission when they are released in April, campaign spokesman Scott McClellan said.

Vice President Al Gore spelled out a general “high-tech” agenda at a speech to Microsoft employees in Seattle on October 15, but has left the heart of the Internet taxation debate untouched.

“I will fight to make permanent today’s tax cuts for research and experimentation — so you can count on a long-term tax cut for innovation and job creation. As I press for free and fair trade, I will work to keep international tariffs off of Internet commerce,” he said.

A spokesman for the Gore campaign said that the Vice President has not yet taken a position on taxing domestic Internet transactions but is studying the issue.

Former New Jersey Senator Bill Bradley, Gore’s only rival for the Democratic nomination, is taking a similar wait-and-see approach.

The only comment offered by Bradley campaign headquarters is an excerpt from a July interview in which Bradley stated that he would tend to stay away from taxing Internet commerce because “it’s too early to make a judgment about what the Internet is actually going to become.”

The explosive growth of e-commerce makes the taxation dispute even more heated. Forrester Research, a Massachusetts-based technology research firm, projects Internet sales will total $1.4 trillion by 2003, up from $50.9 billion last year.

Tax proponents say that Internet businesses are being given a free ride at the expense of “brick and mortar” merchants. They also worry about the loss of revenue for state and local governments, who by and large are heavily dependent on sales taxes.

“Is it acceptable to discriminate by collecting no tax from the techno-shopper with the Palm Pilot and Sharper Image catalog but demanding it without fail at the cash register from the traditional shopper who may not be able to afford a computer? No. It isn’t fair. And it’s lousy, indefensible tax policy,” Utah’s Republican Governor Mike Leavitt said in a speech at the National Press Club this week.

Leavitt and others on his side of the issue are quick to clarify they only propose that current tax systems be applied equally to all retailers. Both sides agree that taxes on bandwidth and access would damage the long-term viability of the Internet.

Opponents of collecting sales taxes on Internet commerce say the cost of collecting taxes for 46 states and thousands of cities would be an undue burden on retailers. By one count, almost 7,600 different governmental bodies in the United States levy some form of a sales tax.

According to the National Association of State Budget Officers, sales taxes make up more than 40% of state revenues. It says states and local governments could lose more than $10 billion per year by 2003 in uncollected sales tax revenues on Internet and mail-order sales.

The Federation of Tax Administrators, an organization of state tax officials, says the current sales-tax system was designed piecemeal over the last fifty years. Up until the 1970s most states had a single uniform rate. But at that time, counties and cities began adding their own sales taxes to fund everything from sports stadiums to libraries and schools.

In Illinois, for example, the state manual listing all state and local sales tax rates runs to 108 pages.