E-Commerce Committee Puts Out Biased Report
(from Maine Townsman, April 2000)

EDITOR’S NOTE: In last month’s TOWNSMAN, Linda Lockhart of MMA reported on a meeting held in Washington, DC, in early March between Maine municipal officials and Congressmen Tom Allen and John Baldacci, and staff of Senators Snowe and Collins. When the issue of e-commerce taxation was discussed, both congressmen and the senators’ staff indicated that they were waiting on a report from the Advisory Commission on Electronic Commerce before finalizing their positions. That report has been submitted to Congress. The National League of Cities, of which Maine Municipal Association is a member, has serious problems with the report. What follows is a news release issued by NLC condemning the report and asking Congress to reject it.

The National League of Cities has asked members of Congress to declare "dead on arrival" a controversial report of the Advisory Commission on Electronic Commerce (ACEC) which was officially submitted to Congress on April 12.

"I am disappointed that a majority of the commissioners chose personal self interest over the good of the American people," said NLC President Bob Knight, mayor of Wichita, Kansas. "What is even more galling is the effort to present a biased proposal as the only product of more than a year’s work, not only rejecting any other findings but also failing to meet the minimum criteria established in the commission’s bylaws for issuing recommendations."

The report that was pushed through the commission in a last minute conference call provides direct tax benefits to the high-tech telecommunications industry and internet-based businesses that were represented on the commission (the "business caucus") at the expense of traditional retailers and the American people.

When the "business caucus" proposal was released in February, Knight said the proposal was "fundamentally flawed" because it would give the federal government control over state and local tax systems, curtail local ability to raise the revenue needed to deliver public services, and put traditional Main Street retailers at a permanent competitive disadvantage against "e-tailers" who would be allowed to sell their goods tax-free.

"I hope that Congress will see this report for what it is ­- a self serving, loophole-laden scheme that benefits a few big businesses and could mean the end of the sales tax as a source of revenue to support basic public services," Knight said. "The report should be dead on arrival."

Mayor Knight urged Congress to reject any legislation that would implement any component of the ACEC final report.

NLC Executive Director Donald J. Borut blasted the commission for ignoring its own rules in adopting a "majority" report rather than sticking with the required two-thirds supermajority to report any findings to Congress.

"A majority faction decided to abandon all efforts at compromise and change the rules to get what it wanted," Borut said. "Even worse, that same faction refused to allow a minority report to ensure that all views on the commission were fairly reported."

During its final conference call on March 30, the 10-member majority refused to delay action on the final report while commissioners continued to negotiate to try to reach a compromise. The eight-member federal-state-local coalition asked for the extension because members of the business coalition had said even the day before the call that they were willing to continue negotiating. The same majority block also stuck together when the state and local group asked for permission to submit a minority report as part of the ACEC final report.

Borut said city leaders had supported Mayor Ron Kirk of Dallas, Texas, the only city official on the commission, in his efforts to reach a compromise with the business coalition, even when that meant offering options that went beyond NLC’s preferred position.

"We supported Mayor Kirk in his Herculean efforts to achieve a compromise by responding to specific concerns raised by the business community about the cost of complying with state and local sales and use tax systems and even our telecommunications tax policies," Borut said. "However, nothing we put on the table seemed to be enough."

"It is more than a shame," Borut said. "It is outrageous and a missed opportunity."

The business caucus proposal, which was endorsed on an 11-8 vote, is included in the ACEC final report as something short of a finding or recommendation which required a two-thirds vote. The proposal would:

• Provide new and continued tax benefits to "dot-com" businesses while requiring Main Street retailers to continue to collect taxes on all sales ­ putting them at a competitive disadvantage;

• Create new loopholes for e-commerce companies to avoid payment of income and property taxes by "affiliating" with companies in non-tax states;

• Eliminate existing sales taxes on items sold in stores today such as books, periodicals, newspapers, software, and compact disks; and

• Give the federal government unprecedented authority over state and local tax systems.

Despite the outcome of the commission’s work, Borut said city officials are committed to working with their partners in state government to streamline and simplify sales and use tax systems to create a level playing field for all retailers and consumers regardless of how purchases are made.

The ACEC was established under the so-called "Internet Tax Freedom Act of 1998" to examine a broad range of issues relating to electronic commerce, including tax structure. The 19-member commission includes eight business representatives from technology and telecommunications firms but lacked any representation by traditional Main Street retailers. It was given the task of preparing recommendations and submitting a report to Congress by April 21, 2000. Its bylaws include a requirement for a two-thirds majority for any recommendations to be offered as a product of the commission’s work.