Net tax panel pinching pennies
It just doesn't know how it's going to pay for it.
The 19-member Advisory Commission on Electronic Commerce, formed after the Internet Tax Freedom Act's passage last October, must advise Congress on what should happen after the current e-commerce tax ban runs out. The decisions the panel will make won't be easy: it must balance the concerns of state and local governments who fear losing tax revenues to online stores with the high-tech industry's fear that new taxes will stunt its growth.
It was to have approved a $1.9 million budget, appointed an executive director, and set a schedule for further discussions, during its inaugural session. But the thorny questions raised by even those mundane administrative issues proved impossible to resolve in the first portion of the two-day meeting.
The budgetary problem is this: How does the commission, for which Congress appropriated no funds, secure cash donations and in-kind contributions without raising suspicions of bias? And how will the panel -- which must report its findings to Congress by April 2000 -- even operate without knowing where its funding is coming from?
The answer to those questions, to say nothing of the wider problems the panel was convened to address, will be critical for the future of e-commerce. With some observers predicting that sales taxes on Internet transactions are inevitable, the commission's advice to Congress will be an important indicator of how and when such a tax system would be implemented, and how much online consumers would have to pay.
Funding shortfall
Of that $1.9 million, just $358,000 has been secured so far, including a $150,000 donation from the Commonwealth of Virginia, the commonwealth's governor and the panel's chairman, James Gilmore, said.
Gilmore suggested each member of the panel could contribute some funding, with $150,000 being the ceiling for a member's contribution, and said e-commerce companies themselves could be approached for contributions, but these ideas faced opposition.
"We don't want it to look like people are buying access, buying influence," said member David Pottruck, president of Charles Schwab and Co. (NYSE:SCH).
And it could raise eyebrows for certain members -- such as the U.S. Commerce Department, represented by general counsel Andrew Pincus -- to pony up their $150,000 share, since such agencies are taxpayer-funded, said another member, Utah Gov. Michael Leavitt.
Leavitt also objected to the idea of appointing the executive director to run the commission's day to day operations before the funding questions were cleared up. A vote on hiring the proposed director, Heather Rosenkerr, on an interim basis, was put off until Tuesday's session.
Member John Sidgmore, the COO of MCI WorldCom (Nasdaq:WCOM), pointed out that it would not be difficult for his company and fellow (anti-tax) telecommunications heavyweight AT&T (NYSE:T) to bankroll the commission's entire budget, but that such an arrangement would certainly be met with protests from (pro-tax) state governments.
Future hearings scheduled
"My company might be able to offer what we'd need at least for interim funding," offered member Michael Armstrong, CEO of AT&T.
A vote was also scheduled for Tuesday on a tentative schedule for future hearings in New York City in September, Silicon Valley in December, and in Austin, Texas, in March.
Also Tuesday, the commission will hear presentations on national and international tax issues from government and private-sector experts.
Meanwhile, tax consultant Ernst & Young on Monday released a report stating that tax-free e-commerce sales in 1998 only cost U.S., state and local governments a 10th of 1 percent of the tax revenues they made that year.
The governments missed out on $170 million in possible tax revenues to online merchants last year, Ernst & Young officials said.