Officials protest tax committee plan

Local governments say Net tax panel is biased and should be stopped from meeting.

UPDATED at 12:05 PM PT

It's not exactly the Boston Tea Party, but local governments are protesting what they see as underrepresentation on an Internet tax panel.

The National Association of Counties and the U.S. Conference of Mayors said Tuesday they will file suit in U.S. District Court in Washington on Monday to block the first meeting of the Advisory Commission on Electronic Commerce, tentatively set for this spring.

Stacked deck
The groups said they are frustrated that the commission, created by Congress to examine e-commerce tax issues after last year's passage of the Internet Tax Freedom Act, has only six local officials in its ranks, compared with nine technology industry executives. (The 19-member panel also includes officials from the Department of Treasury, the U.S. Trade Representative's office, and the Department of Commerce.)

Dallas Mayor Ron Kirk, one of the local-government appointees, called that decision "regrettable." Tom Cochran, executive director of the Conference of Mayors, went further, saying in a statement that it was "an arrogant disregard of a law that clearly calls for state and local representation equal to that of business interests." "It is clear the membership has been stacked against local government," Cochran added.

The commission was created to reconcile the concerns of state and local governments, who fear a loss of tax revenue to online transactions, with those of the high-tech industry, which believes e-commerce taxes will stifle its growth. The Internet Tax Freedom Act imposes a three-year ban on e-commerce taxes, but the commission, formed through appointments by four members of Congress, has only 18 months to decide what happens when the moratorium runs out.

Not valid?
The NAC leader said the suit will be filed because the groups believe the commission's work won't be valid without input from more local officials.

"Anything the commission might produce following a meeting would be nothing more than a sham," NAC President Betty Lou Ward said in a statement. "It lacks credibility. It's simple mathematics."

The panel was originally to be made up of eight local government representatives, eight industry officials, and three officials from federal agencies. Appointments were made by the majority and minority leaders in the House and Senate. Since the Republicans hold a majority in Congress, they got to appoint 10 of the panel's members to the Democrats' six.

But the Republicans -- Senate Majority Leader Trent Lott, R-Miss., and former House Speaker Newt Gingrich -- appointed six industry officials and only four local representatives, instead of five and five, according to a spokesman for one of the Democrats responsible for forming the panel, Minority Leader Richard Gephardt, D-Mo.

"The Republicans didn't pick the right ratio," Gephardt spokesman Eric London said, adding that Gephardt is "committed to trying to find closure on this issue."

Avoiding a lawsuit
"We don't want this to come to a lawsuit and we're hoping the confusion can be worked out," London said.

Gingrich left Congress at the end of last year following Republican losses in the November elections. A spokesman for Lott wasn't available for comment, but was quoted in published reports Wednesday saying the outcome of the commission's work is more important than the ratio of local officials to industry executives.

Meanwhile, one observer said the threatened lawsuit was simply sour grapes on the part of the local government groups about the tax moratorium's passage.

"The mayors and the governors did everything they could to weaken this legislation, because they see the Internet as one big cash cow," said Dave McClure, executive director of the Association of Online Professionals trade group. "They agreed to support this panel before, but now they're using this ratio issue to try and revisit the original debate" on whether there should be an e-commerce tax ban, he said.

Among the high-tech industry officials named to the panel are Netscape Communications Corp. (Nasdaq:NSCP) CEO Jim Barksdale, Gateway Inc. (NYSE:GTW) CEO Ted Waitt, and America Online Inc. (NYSE:AOL) President Robert Pittman.


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