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Friday, March 24, 2000
Houston, Texas
Volume 65, Issue 118

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Brandon Moeller

What happens when you mix together members from federal agencies controlled by the Clinton administration, add a dash of e-commerce corporation representatives and throw in some governors and representatives of state governments? Nothing, if you're looking for a compromise concerning sales taxes on the Internet. 

As part of the Internet Tax Freedom Act, Congress compiled the 19-member Advisory Commission on Electronic Commerce in 1998 and also declared a three-year moratorium on new Internet taxes. With the moratorium set to expire Oct. 21, 2001, the commission intended to compromise on a solution on the growing debate of whether or not purchases made on the Internet should be subject to the same sales tax laws required by traditional retailers. 

The commission failed to meet the two-thirds super-majority measures established in order to send a non-binding full set of recommendations to Congress. Yet the simple majority will most likely send Congress its report outlining what it wants. 

It's always about what it wants. Representatives, who would directly benefit from a tax-free or low-tax Internet, made up the majority of the commission. AT&T, MCI WorldCom, Time Warner, America Online, Charles Schwab & Co. and Gateway were all represented in the commission. I don't know why they bother to construct commissions on issues, when it's obvious business representatives cannot be persuaded to take an economic loss if they have a say in it. 

A Congressionally appointed commission doesn't really have much influence anyway. If anything, it's a way for Congress to poll these conflicting sides and see which one is more adaptable to compromise. Now it knows how big of an issue it's really looking at.

Web consumers currently have to pay sales taxes if the company they're ordering from has a "physical presence" in their state. A physical presence or "nexus" is hard to define, which was one of the topics of discussion in the commission's meetings. 

A 1993 Supreme Court ruling said that a business must have a physical presence in a state in order for the business to be required to charge state sales taxes. The majority of the commission endorsed a proposal that would clarify the Supreme Court's words, making it clear that Internet service providers and Web pages will not be taxable.

For example, UH "Student A" buys his textbooks from an e-commerce chain such as Amazon.com. "Student B" surfs over to the Rother's Web site (which is anticipated to offer Web site sales beginning with the Fall semester) and buys his or her textbooks. "Student C" goes to Rother's physical store and buys the books. Which student won't have to pay sales tax? The answer is "Student A," because we live in Texas, and George W. Bush hasn't convinced the legislature that our state shouldn't have to pay sales taxes on textbooks. Other states have approved such legislation. Not Texas. 

Internet sales tax advocates and dissenters agreed that tax codes must be simplified if sales taxes were ever enforced on the Internet. As the current system is, e-commerce businesses theoretically could have to collect varying rates from 30,000 different tax jurisdictions within the United States. 

This may seem like it would be overwhelming for small businesses. However, the demand would definitely establish a market for a software program that would easily and affordably calculate each jurisdiction's rate.

State tax officials estimate that if the Internet were to remain tax free, states could lose at least $25 billion annually. Sales-tax revenue makes up 59 percent of Texas' funds. It has been estimated that Texas lost $51.9 million in tax revenue due to the Internet in 1998.

If this continues, the Texas transportation system will worsen, among other things. With so many potholes out there already, imagine what the roads will be like when the budget decreases.

Moeller, a communication sophomore, 
can be reached at brandonmoeller@hotmail.com.

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