US governors face off over Net taxes

The dreaded taxman is going online, and "nothing will be safe," Virginia Governor James Gilmore declared during an electronic commerce policy forum sponsored by the Bureau of National Affairs at which he spoke on Monday.

Gilmore, who chairs a commission created by Congress to study online taxation, favours the elimination of all taxes arising from electronic transactions. He has rolled out a proposal granting immunity from all tax, including sales tax, which he hopes will be adopted at the national level.

"The Gilmore proposal empowers people and reduces the digital divide by cutting taxes on American consumers' access to the Internet in the amount of more than $3.3 billion annually," the governor's office claims by way a canned press release.

But Utah Governor Mike Leavitt sees it differently. He calls the proposal "blatantly unfair," first, because poor citizens unable to afford a PC and an ISP account will be forced to pay sales taxes which their more affluent neighbours will evade; and second, because local merchants will be trading at a price disadvantage with large online e-tailers.

"Everyone hates taxes," Leavitt said during a National Press Club news conference in Washington yesterday, "but if we have to have them, then they have to be fair." At present, sales tax varies state to state, and city to city throughout the US, creating a daunting administrative burden for all retailers doing business nationwide.

The strategy to date for e-tailers has been simply to pretend that sales taxes don't exist, or to imply that they have been entirely too busy "pioneering" themselves to venture into the grotty world of accounts balancing. Leavitt would ease the burden by creating private, for-profit companies whose job it would be to calculate, collect and distribute sales tax in exchange for a small cut of the revenues.

These companies would develop billing software to calculate the relevant tax at the point of sale, based on the tax rate in the locale where the products are to be delivered, and so entirely relieve the retailer of responsibility. It's a "twenty-first century solution," he said. He suggests a three-year, voluntary pilot programme.

Asked why an e-tailer might volunteer for a scheme which will result in higher prices, Leavitt replied that pressure will mount from both brick-and-mortar retailers seeking a level playing field, and from local governments which will "feel the pressure on their own revenues." The alternative, Leavitt warned, will be national sales tax legislation drafted by Congress. Clearly a terror sufficient to send a few volunteers his way. ®

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