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Hilson, Brooks Lead NLC Efforts in Electronic Commerce Project.

Frustrating is the best word to characterize a recent meeting of business, state and local groups assembled too find common ground regarding fair electronic commerce taxation.

The two NLC representatives, Councilmembers Joe Brooks, of Richmond, Va., and Joe Hilson, of Hayward, Calif., met last week in Washington, D.C. at the fourth meeting of the National Tax Association Communications and Electronic Commerce Tax Project.

The Communications and Electronic Commerce Tax Project is the industry-state-local tax initiative formed under the auspices of the National Tax Association (NTA) -- an organization that industry and state and local representatives agree could provide a neutral forum for both sides.

The project includes 16 state and local government and 16 business representatives, as well as seven other "neutral" representatives, including one from the U.S. Treasury.

The Tax Project's goal is for industry and the state and local governments to develop a broadly available public report that identifies and explores the issues involved in applying state and local taxes and fees to electronic commerce. That includes recommendations to state and local officials regarding the application of such taxes. Organizers expect that the report also will include model legislation designed to implement the recommendations of the project.

At the meeting last week, the group agreed to accelerate the schedule of meetings this coming year in an effort to achieve an agreement before the end of the year. Members are concerned that failure to make substantial progress would lead the federal Electronic Commerce Commission the Congress expects to name by December 5 to ignore any recommendations it makes.

The focus of the discussions to date have involved efforts to improve uniformity and to simplify state and local sales and use tax compliance and administration. The changes cities and states would be expected to make in ordinances and laws with regard to simplification and uniformity are premised on adoption of a system in which all Internet and mail order sellers with sales above some de minimis threshold would be required to collect and send to states for allocation to cities and towns some level of blended sales taxes on goods and services sold into a state.

Brooks has made clear: "The Government members of the Steering Committee and the associations we represent are committed to dear, nondiscriminatory tax policy, including the taxation of the sale of goods and services, however they occur and wherever the seller is located. Our role as government is to protect people from discriminatory action, and that requires tax systems that are fair, efficient, effective, and nondiscriminatory. Laws that result in court challenges because of inconsistent, discriminatory, or ambiguous language or application must be improved.

Hilson noted that "The products we will develop must be explained and taught to our citizens. To sell these solutions will require a genuine partnership. It is our hope that this partnership will be formed and improved through the work on this first electronic commerce issue, the taxation of transactions."

Demonstrating the intense interest and the stakes involved, more than 150 members of the public and project came to last week's session.

Because the nature of information technology is changing so rapidly, one of the problems members of the project have faced is information overload. While all agree that understanding how transactions take place is critical to any agreement about how to change the rules that have been built up over centuries, he group seems to have reached a stage where it must act. The four areas of discussion and issues are:

1. Tax Rates and Local Simplification Issues--should there be a uniform tax rate applied to all electronic commerce sales in a state, or put another way, should the current pattern of varying local option sales tax rates now present in about 30 jurisdictions should be consolidated into a single rate in each state?

2. Tax Base Issues--should there be uniformity in sales tax bases would make many other issues of complexity disappear. Can a system be agreed upon in which key elements of the tax base are defined uniformly from state to state, with the policy makers in each state choosing to tax or not to tax a given category at their discretion?

3. Administrative Issues--are uniform registration return and remittance procedures and electronic filing concepts that are feasible to develop and implement?

The administrative issues have proven especially complex, involving such issues as whose tax or audit would apply in the case of an Internet digital transaction. How often and to which government would filings be made?

What would the role of vendors be (such as Mastercard or Visa) and would states have to amend existing state laws or constitutions to provide fees to vendors? Where would liability lie in the case of a transaction where full state and local taxes were not collected and remitted?

4. Telecommunications--should whatever simplification and other changes that might be agreed to electronic and Internet transactions be equally applied to telecommunications?

Unlike Internet electronic commerce and mail order catalogs, most telecommunications providers (wireless and wired phones, cable, etc.) have "nexus" or some kind of a physical presence in each state.

Therefore, under current federal law, they are subject to state and local taxes and fees. But as telcomm providers compete more and more, and merge more and more, against or with information technology companies, they wish to compete on a level playing field vis-a-vis state and municipal governments.
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Title Annotation:National League of Cities and National Tax Association
Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Article Type:Brief Article
Date:Nov 30, 1998
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