US Mayor Article

In Forum on Internet Taxation, Dallas Mayor Says Taxes Should Be Applied Equitably

By Larry Jones
March 20, 2000

Participating in a forum on Internet taxation in Washington, Dallas Mayor Ron Kirk told a large gathering that state and local sales taxes must be applied equitably to all commerce and that sales over the Internet should be no exception. “If a book or newspaper is purchased at a book store, the sales tax should apply; and if the same is purchased over the Internet, the sales tax should apply,” Kirk said. Further, he explained that state and local tax policy should not discriminate based on how something is purchased because to do so would give one form of commerce a competitive advantage over the other.

The March 8 forum, which was co-chaired by Senator John D. Rockefeller IV (W.V.) and Senator Bill Frist (TN), featured three other speakers who, like Mayor Kirk, serve on the Advisory Commission on Electronic Commerce. Created by Congress in 1998, the Commission was established to examine the impact of state and local sales taxes on electronic commerce and make recommendations to Congress by April 21, 2000. The other speakers included the Chairman of the California Board of Equalization Dean Andal, who favors a tax free Internet; MCI WorldCom Vice Chairman John Sidgmore, who supports reforms to simplify the sales tax and a level playing field, but favors exempting Internet access fees and digitized goods from the sales tax; and Utah Governor Michael Leavitt, who chairs the National Governors’ Association and is spearheading a national grassroots effort to simplify and streamline state and local sales taxes so they may be easily applied to electronic commerce and remote sales.

Governor Leavitt posed three questions: (1) is the sales tax a viable option for the 21st Century? (2) if we’re going to maintain the sales tax, are we going to create a permanent special privilege for merchants selling goods over the Internet or a level playing field for all commerce? (3) who will make decisions regarding basic local services. Like Mayor Kirk, Governor Leavitt believes the sales tax can be simplified so that it will be a viable option for raising state and local revenues in the 21st Century. He also believes tax policy should promote a level playing field for all commerce and that governments should not be in the business of deciding which form of commerce should have a competitive advantage.

Mayor Kirk and Governor Leavitt also explained that the sales tax, on average, account for approximately one third of the total revenues of most states and a significant portion of the total revenues of many local governments. These funds are used to pay for essential public services such as education, law enforcement, fire protection and transportation. They pointed out that any loss in sales tax revenues will have to be replaced with increases in other taxes and fees.

Andal said he doesn’t believe state and local government have experienced a loss from Internet sales now or that they will experience one in the future. He explained that only a small fraction of retail sales are actually taking place over the Internet. Instead of losing revenues, Andal argues that states have taken in a huge surplus in revenues over the last few years due in large part to the booming economy which is being fueled by the Internet and high tech industries. As an example, he cited an 8.9 percent growth in California’s revenues last year. While only a small fraction of retail sales are currently being conducted over the Internet, Mayor Kirk pointed out that as more households go online and use the internet to make tax-free purchases, the proportion of sales over the Internet is expected to increase significantly. When this happens, it will cause an erosion of state and local revenues if the Internet remains tax free.