Tax panel could ban select e-commerce levies By Bloomberg News Special to CNET News.com December 15, 1999, 11:00 a.m. PT http://news.cnet.com/news/0-1007-200-1497252.html?tag=st.ne.1007.thed.1007-2 00-1497252 SAN FRANCISCO--Members of a commission examining Internet taxes may recommend halting some taxes on electronic commerce, according to the panel's chairman, Virginia Gov. James Gilmore. Repeal of the 3 percent federal excise tax on telecommunications services, a ban on "transaction taxes" on Internet service providers, and prohibition of taxes that discriminate against Internet users are three potential areas of agreement by the 19-member Advisory Commission on Electronic Commerce, according to a briefing paper. "These may be places where consensus may emerge," Gilmore said of a recommendation to eliminate excise taxes. The commission is meeting this week in San Francisco. Elimination of the 3 percent federal excise tax on telecommunications, imposed in 1898 to fund the Spanish-American War, would save consumers $3.3 billion annually, analysts said. "I see all of these as proconsumer initiatives," said Nilesh Shah, electronic commerce specialist for KPMG. Repeal of the telephone excise tax would mean phone companies such as AT&T and MCI WorldCom would be relieved of the burden of collecting the excise tax. Internet service providers such as America Online and PSINet wouldn't have an additional tax on Internet access bills, thereby keeping their services affordable for more consumers. It takes a two-thirds vote for the congressionally created commission to adopt the recommendations, and Congress would have to approve the changes at a time of budget constraints. Industry analysts said an emerging consensus on cutting taxes related to Internet access has been overshadowed by larger, politically charged disputes over whether and how to collect them on Internet sales. "That hasn't gotten too much airtime," Shah said. Rich Prem, a tax analyst and partner at Deloitte & Touche, said repealing or blocking the imposition of excise taxes on Internet access was "one of the few areas" of agreement on the commission. "There's a broader agreement that the infrastructure should remain tax-free," Prem said. Congress in 1998 put a three-year moratorium on new taxes on Internet access, and on levies that target or discriminate against electronic commerce, and created the commission to recommend solutions. The wireless telecommunications industry tried to repeal the 3 percent excise tax in 1998. Congress didn't go along because lawmakers were reluctant to reopen the 1996 telecommunications reform bill, which deregulated the industry. Karen Myers, tax policy specialist for Electronic Data Services, said the current federal budget surplus might improve Congress's appetite for repealing this tax. The Congressional Budget Office is estimating a budget surplus as low as $129 billion for the 2000 fiscal year. "I think the chances are significantly better that it gets serious consideration [by Congress]," Myers said. The panel, which includes the governors of Washington, Virginia, and Utah as well as executives from Charles Schwab and Gateway, is divided over whether to tax Internet sales. Local governments, led by Utah Governor Michael Leavitt, fear the fast growing online sales will erode the sales tax base of states, cities and counties, which use sales taxes to finance police, firefighters, and other services. Meanwhile, Deloitte & Touche, and the University of California at Berkeley produced a paper recommending Congress give the advisory commission extra time, at least through the end of 2000, to produce its study. "There is no need to rush to judgment," said Hal Varian, dean of School of Information Management and Systems at Berkeley.
