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To tax or not to tax? Panel wrangles with online sales
Merchants on Main Street say Net robs them

WASHINGTON (AP) -- Consumers are flocking to the Internet, where shopping by computer is convenient and easy, the selection seemingly unlimited and the sales tax uncollected. New research shows online sales rising 300 percent a year and possibly topping $200 billion in 2000.

Keeping electronic commerce tax-free will help the economy grow faster, say many in business. But merchants large and small, on Main Street and in the mall, fear online shopping robs them of customers, while local governments worry about eroding the tax base needed for schools and public safety.Everybody frets about losing business if high U.S. taxes are imposed on Internet purchases: Americans might buy from foreign companies while consumers in other countries might bypass U.S. products.

A 19-member commission created by Congress meets Monday in Williamsburg, Va., to begin sorting through tax options for Internet commerce. The goal is to have new laws in place before a federal moratorium on new taxes for e-commerce expires Oct. 21, 2001.

The panel's incoming chairman, Virginia Gov. Jim Gilmore, a Republican elected in 1997 on a tax-cutting platform, said in an interview he has no illusions about how difficult it will be to reach a consensus.

"I would not overestimate the conflict. It may not be resolvable," Gilmore said. "My goal is to run the commission in a way that allows all ideas to be aired out and to give a fair hearing. We will not cook up a policy and try to ram it down somebody's throat."

With the growth of e-commerce, the commission's work promises to have a lasting effect on Americans' shopping habits.

Austan Goolsbee, an economics professor at the University of Chicago, said most research indicates online sales next year could reach $200 million to $1 trillion. His own study of 25,000 online buyers concluded that imposing a sales tax on remote commerce would cut spending by 30 percent.

"Internet sales are highly sensitive to local taxation," Goolsbee said.

In most states with a sales tax, people who buy things online or from out-of-state catalogue companies are supposed to calculate and send in the sales taxes, but it is rarely enforced. In 1992 the Supreme Court said Congress would have to change the law to require one state to collect and remit taxes for business done in another state.

Commission members include government officials and executives from telecommunications and Internet industry companies such as AT&T Corp., computer maker Gateway Inc., America Online and broker Charles Schwab & Co.

Democratic Gov. Gary Locke of Washington and Republican Gov. Michael Leavitt of Utah are among the political members.

Even before the commission's first meeting, the lobbying has been intense.

Organizations representing mayors and counties used a federal lawsuit to block the commission from meeting until Senate Majority Leader Trent Lott, R-Miss., replaced Netscape chief James Barksdale with a local public official -- tipping the membership's balance toward government.

Those same groups, joined by governors and other local officials, said in a recent letter to commission members that its tax priorities should include "equitable treatment for all Main Street sellers and preservation of the single most important resource for education in our nation."

"Our ability to raise, educate and train children ... will determine whether we can meet the needs of the nation's new information technology," their letter said.

In contrast, commission member Grover Norquist, president of Americans for Tax Reform, opposes any federal tax on the Internet and wants to make permanent the current tax moratorium.

"There's a real danger (politicians) will pick on electronic commerce," Norquist said. "Some politicians say, 'Oh, this is new. Let's tax it.' "

Most business groups fall somewhere in between, but many that are active on the Internet fear being targeted with taxes.

Frank Kelly, vice president in Schwab's Washington office, said the investment firm now does up to $4 billion in trades a day on line.

"For a company like Schwab, our customers are already taxed," Kelly said. "We are concerned that new taxes will impact our customers."

Yet Mark Nebergall, vice president of the Software & Information Industry Association, said Internet business is unlikely to escape taxation unscathed. Most companies just do not want to face a patchwork of taxes from some 30,000 state and local governments.

"What's fair and equitable for other forms of commerce ought to apply to electronic commerce as well," Nebergall said.