WASHINGTON - Once again sounding an alarm to which Congress seems deaf, US governors and mayors said Friday that House and Senate bills that seek to impose a moratorium on new Internet taxes would wreak havoc on local economies.
"It is the most significant challenge to state sovereignty that we have seen in the past 20 years," Ohio governor George Voinovich said at a news conference. "The legislation coming out of the House would lead to a virtual sales tax collapse."
Voinovich, president of the National Governors' Association, said that the Internet Tax Freedom Act, sponsored by Representative Chris Cox (R-California) and Senator Ron Wyden (D-Oregon) would put local merchants out of business because people would buy goods and services tax-free on the Internet.
"What sounds good isn't really going to be good for our communities," said Fort Wayne, Indiana, Mayor Paul Helmke.
Helmke said that the city of Chicago alone would lose US$15 million per year in sales taxes if the Cox/Wyden bills became law.
The mayors and governors issued similarly dire warnings in July.
But the bills' sponsors say that all taxes would still apply to the Internet, and that the intent is simply to make sure that cities, states, and local governments do not impose Internet-specific taxes. Such levies might include special charges for Internet service providers, or charging higher taxes for online transactions.
In part to answer such complaints, Wyden will introduce a substitute version of his bill to clearly set out what taxes may apply to the Internet, spokesman David Seldin said.
"The substitute spells out very precisely the taxes that could be levied," Seldin said. "We feel it addresses concerns raised by local officials."
The two bills, which are supported by the Clinton administration, would place a four- to six-year moratorium on applying new taxes to online services or Internet-specific transactions. During that time, the administration would examine Internet taxation and make recommendations to Congress.
Last week, two House subcommittees passed the Cox bill, and two full committees are expected to approve the bill in the next few weeks.
"State and local governments are allowed to impose sales and use taxes on all ... electronic sales, provided that the tax (and its rate) are the same as that which would be imposed on the transactions if they were conducted in a more traditional manner," Cox said in a statement.
But mayors, governors, and city council members opposed to the bills maintain that this is exactly the problem - and point to mail-order firms like J. Crew and Land's End that often escape state and local taxes. They say that electronic commerce will slow sales on Main Street with everyone shopping online.
"How do you make up those revenues?" Voinovich asked. "Mail-order houses are a very similar and ongoing problem to the Internet."
But bill sponsors say that the legislation would actually help local businesses by not entangling them in additional taxes for selling wares on the Internet.
"The people who are going to be helped by this bill are the mom and pop stores going online," Seldin said. "The Internet is the main street of the future."
