Adopting a plan by Utah Gov. Mike Leavitt, the nation's governors agreed Tuesday to oppose any taxes on Internet access fees.
But the free ride ends once people are connected to the Internet, because Leavitt's plan would soon make them pay sales taxes that they now generally escape for goods bought there.Leavitt told the National Governors Association that states and local governments "have an industrial-age system of collecting sales taxes that doesn't work well in the information age."
He noted that many goods now sold in person at stores - where sales tax is easy to collect - will be sold more in the future over the Internet, where sales tax often is not now charged.
The first step of Leavitt's plan is for governors to help protect access and viability of the Internet by opposing any tax on access fees, ensuring those using it for educational and similar purposes are not hampered by extra taxes.
Next, it calls for collection of tax on sales made via the Internet, if states make some reforms first.
That includes adopting one statewide sales tax rate in each state to allow easier collections. Many cities, counties and other taxing areas create many different rates in many states.
"There are 6,000 taxing rates in the United States alone," Leavitt said. "We need to have one per state instead of 6,000." He acknowledged that may be a big challenge politically.
The plan also calls for states to otherwise simplify collection rules, including allowing Internet-sales companies to submit tax payments electronically with software that would compute how much they owe to different states.
Leavitt said if such steps are not taken quickly, the federal government may step into Internet sales regulation and states could lose control over traditional revenue sources.
The plan was opposed by a few governors - including Pete Wilson of California - who said it could hurt Internet companies, and appears to be moving too quickly into an area that is constantly changing.
Leavitt and Colorado Gov. Roy Romer were named by the association to head a task force on Internet development to work out such issues with Congress and the Clinton administration.
President Clinton in a meeting with governors on Monday vowed to order study of the issue and work with governors.