SAN FRANCISCO -- Nearly 30 years later, what appeared as a brilliantly simple concept scribbled on the back of an envelope has given birth to a complex and paralyzing issue.
In 1973, Stanford University researcher Vinton Cerf paused in the lobby of the Westin St. Francis Hotel here and sketched the gateway architecture for what is now known as the Internet.Notes for the fledgling system described how computers could talk to each other. And now the country's foremost experts on technology and tax issues are here to grapple with the 1999 version of the pressing Internet question: whether or not to tax sales made online.
Gov. Mike Leavitt, head of the National Governors Association and a member of a commission appointed by Congress to tackle Internet tax issues, backs a plan by which states could voluntarily decide to try an Internet taxing system.
His plan garnered support Tuesday from the e-Fairness Coalition, a group of national and regional retailers who say the new technological economy needs to have a level playing field.
"Right now, retailers who sell goods over the Internet are, in effect, receiving a subsidy," said Peter Lowy, president of Westfield America, the nation's fourth-largest real estate investment trust.
The group held a press conference to get out their message, even before commission meetings began Tuesday. "This sends a message that discriminatory policies are acceptable -- they're not," Lowy said.
"We don't support creating new taxes on the Internet but, like most Americans, we believe all sales taxes should be equally applied on all commercial transactions -- whether they are online or in a store," said David Bullington, a Wal-Mart vice president and a founding member of the e-Fairness Coalition.
The press conference was one small move in two days' worth of political positioning on the subject.
Representatives from hundreds of private and public interests watched the 19-member commission hashing details of several proposals. Commission members philosophized, they clarified. They politely called each other into question on myriad tax issues and details. Leavitt's plan, supported by the NGA and several other groups with state and local rights in mind, was to be presented to the commission Wednesday.
This is the third of four meetings of the advisory commission, which must report back to Congress in April on electronic commerce issues.
Nothing was resolved this week at meetings of the Advisory Commission on Electronic Commerce taking place at the on Union Square. But Leavitt has a theory about how it will play out.
Leavitt told reporters Tuesday that he doesn't expect the commission alone to come up with a quick solution.
"The commission's actions will be inconclusive," he surmised. In a month or two, the nation's lawmakers will be bombarded with legislation from every known interest on this issue. They won't be able to agree on any one plan, so Congress will do nothing.
But next holiday shopping season, e-tailing -- which this year generated three times the online sales of the same period in 1998 -- will be off the charts again. And this, Leavitt said, is when big retailers like Sears, WalMart, J.C. Penney and The Gap are going to start complaining. Once big retailers get involved, the market will react, but that action will leave a larger question, he said.
"The issue is whether or not our sales tax system will be viable into the 21st Century."
While Leavitt may believe he can predict how the script directing Internet taxation will write itself, the other members of the commission appointed by Congress seemed to want to chew the philosophical fat on the topic that has emerged as a premier discussion for the new century.
While mulling over several proposals Tuesday, Dean Andal, commission member and chairman of California's Board of Equalization, took a jab at other government leaders who have said online commerce costs states money in lost revenue. That hasn't been the case in California, he said. "I just don't buy it." His state hasn't lost money to the Internet, he said.
Sales tax, however, accounts for one-third of states' tax revenue.
After similar claims by Chris Wysocki of the Small Business Survival Committee, Commissioner and Dallas Mayor Ron Kirk told Wysocki, "You look like a smart person to me, but if you have a line that says 'pay your taxes' and a line that says 'don't pay your taxes' . . . in the words of my 7-year old, 'Duh.' "
Leavitt said he agrees with some in the "anti-tax camps" who say government should boil itself down to the bare bones.
"But once we're there, what do we do?" Leavitt asked. The issue will still loom, Leavitt said.
Small businesses will succeed under a simple tax structure, Wysocki said. "And maybe one that's fair, and one where everybody pays the same," Leavitt tacked on, while Wysocki continued to nod.
Andal said it may be nothing needs to be done. "I don't think the state sales tax is fatally flawed." There are some problems, but there is no need to "blow up the entire system."