June 2000

COMMISSION PROPOSES EXTENDING E-COMMERCE TAX MORATORIUM

The Advisory Commission on Electronic Commerce submitted its report to Congress on April 12, proposing, among other things, a five-year extension of the tax moratorium on electronic commerce and a simplification of state and local sales taxes. These antitax proposals were not formal recommendations, however, as infighting within the commission failed to produce the necessary two-thirds endorsement required by its charter. The commission's formal recommendations were broad pronouncements on addressing the "digital divide," protecting the privacy of consumers online, and implementing a standstill on international tariffs.

Created in October 1998 by the Internet Tax Freedom Act, the commission was charged with studying the impact of taxation on e-commerce and subsequently proposing policies that would form the basis of legislation. The commission members were drawn from Federal and local governments and telecommunications and technology companies.

Among the report's highlights, the commission proposed that Congress--

* extend for five years the current moratorium on multiple and discriminatory taxation of electronic commerce;
* clarify the factors determining a seller's physical presence for the purposes of establishing a collection nexus;
* draft a uniform sales and use tax that would equalize collection costs for all sellers;
* make permanent the current moratorium on transaction taxes on the sale of Internet access; * eliminate the 3% Federal excise tax on communications services, along with excessive tax burdens on telecommunications property, and draft a uniform telecommunications excise tax.

The proposed simplification of state and local sales and use taxes, along with clarified nexus standards, would be a benefit to tax advisors, according to Stewart Buxbaum, Buxbaum & Company P.C., a member of the NYSSCPA New York State, Municipal and Local Taxation Committee. By removing some of the complexities of tax compliance, CPAs would be freer to concentrate on more constructive tax planning and advice.

Generally, Buxbaum also agrees that the proposed "bright line" guidance on nexus determination--which would, for example, remove the collection burden for in-state affiliates responsible for returns and warranty fulfillment--would be a benefit to businesses selling over the Internet.

Ten days after the commission delivered its report, the presidents of 11 major trade associations delivered a joint letter to Congress urging it to act on Internet taxation during its current working session. The letter suggested a comprehensive approach that includes building a framework for simplifying the sales tax system, extending the moratorium, and clarifying existing rules regarding taxable presence.

On the other front, the National Governors' Association sent a letter signed by 42 state governors to the congressional leadership voicing opposition to the commission's report and criticizing its procedures. The letter urged Congress to support a fair and equitable tax system that would create a level playing field for all businesses and respect state sovereignty in raising revenues.

Congress has already begun to take action on the committee's major proposals. At press time, the "Internet Nondiscrimination Act," intended to extend the tax moratorium, had passed the House and "The New Economy Tax Simplification Act," intended to clarify nexus standards, had been sent to the Senate Committee on Finance.

Information about the commission and its full report are available at www.ecommercecommission.org". *



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