Review of the ACEC Meeting in Dallas, March 20-21, 2000

A1) International Consensus

Permanent extension of the moratorium on all tariffs and duties on electronic transmissions
International consensus on tax rules—existing, not new ones.
Adequate funding for #2
Avoid legislation inconsistent with these tenets

From the very first proposal, the three representatives from the Clinton administration, Pincus, Novick, and Guttentag, weighed in with their dissatisfaction with the proceedings and the commission's failure to reach a consensus, by abstaining from the voting.

Pincus: "abstain, until consensus can be reached on all issues, while still seeking fair and neutral treatment of tax policy."

vote: 11 yea; 0 nay; 7 abstain.

A2) Sensitivity to international ramifications - Sokul

Explore affect on competitiveness
Decisions made here become a model for global action.

vote: 11-0-8

As it turned out, every single vote for the entire session fell along the lines of the "business caucus" on one side and the "state and local caucus" on the other, with the feds supporting the latter.

question--"is abstention equivalent to a no vote?"

which it, in fact, was. then ensued a contentious debate over whether a 50% majority was adequate for items to be included in the final report to Congress or whether a 2/3 majority was required for inclusion in the report. Language in the Internet Freedom Act specifically stated that a 2/3 majority was required for specifications of "findings and recommendations" but it was implied by Parliamentary Rule that only a simple majority was required all such other topics to be included in the report. Several argued that, since the only purpose of the report was for "findings and recommendations" to Congress, a 2/3 majority should be required for anything in that report.

B1) Business caucus proposal - Schwab CEO, David Pottruck

Goals:

simplification; reduce burden on all
level playing field, equanimity
privacy rights must be considered
sovereignty of state and local governments

Resolutions:

make permanent the moratorium on access taxes and any new taxes
reform telecom taxation (i.e. eliminate the 3% federal excise tax)
must have a structured process for simplification.
revenue neutrality by reducing sales tax rates to match rise in use tax revenues.

Norquist	everybody supports simplification and elimination of the discriminatory telecom taxes.
Gilmore	wants no taxes but accepts this proposal as a fair compromise.
Armstrong	currently there is 18% tax on telecom + access, adding to the "digital divide." AT&T remits 90,000 taxes a year.
Jones	Why are digital goods exempt? answer by others: no new taxes + privacy issues.
Kirk	agree in concept, but not this specific proposal.
Lebrun	28 states currently tax downloadable software. These states would be hit hard by banning taxes on digital goods.
Andal	supports elimination of telecom tax. and simplification is A#1, but states haven't done this, so this must be top priority.
Locke	ban access charges, states can't participate w/o simplification. not a level playing field yet.
Gilmore	exceptional compromise proposal that gives us 5yrs to assess before taking the next step.

vote: 11-1-7

There was a bit of "now what do we do?!" since it was hoped that this proposal could be adopted as fairly representing the views of the entire panel.

B2) State and local caucus - UT Gov. Leavitt

Leavitt asked to substitute an amended version of his original proposal that would answer the concerns that held back acceptance of the business caucus proposal, but was denied because the panel had already voted to stick to the agenda and entertain floor amendments afterwards.

B3 through B16, by Norquist, Sokul, and Gilmore

...withheld at this time.

3 hours in session followed by 3 hours in recess, then adjourned for the day (night).

Day 2

Pincus, Novick, and Lebrun, not present

B3-7: Norquist

proposals explained but withdrawn at this time

Eliminate S&U on personal computers and Internet access
Recommend to state and local governments $100 maximum sales tax for any taxable item purchased.
Sunset the Gore tax after it pays for computers and Internet access in schools.
No tax on Internet access
Eliminate 3% federal excise tax

B8-11: Sokul

Establish federal remedy for unconstitutional taxes (i.e. settle state complaints in federal court)
Strongly urge and track simplification by states
Need for improved economic data to support decisions made by panel

4. Offered for vote: Need for increased attention to privacy issues related to Internet taxation.

Locke	submitted amendment to expand coverage to all eCommerce, not just taxation.
Sokul	asked for removal of paragraph including "manner that minimizes..."

vote: 12-0-5 [later, 3 abstentions changed to yeas for 2/3 majority]

B12-16: Gilmore

all withdrawn at this time

Protect from expanding S&U tax collections
Burdens on small businesses should be as minimal as possible.
Eliminate telecom taxes
Close the digital divide

morning session started 1-1/2 hours late, lasted 40 minutes, and then went into 3hr recess.

2pm

Gilmore: "After working through the night and this morning, we are unable to reach a consensus at this time. We will continue to strive for consensus after this meeting in order to complete a recommendation to Congress."

Proposals for rule changes:

#1: Prepare draft of report to Congress and vote via conference call.

vote: 17-1-1

#2: Allow simple majority to determine contents of the report.

vote: 10-8-0

#3: Allow commissioners to include separate reports of up to 1,000 words.

Norquist asked, "how do you count hyphenated words?" (haha)

vote: 18-0-0

Floor amendments:

#1: Gilmore, re: digital divide: clarify welfare guidelines for access for needy families; states partner with private industry to supply computers and access.

Kirk	add the collection of data to support above.
Lebrun	agree, but ironic that South Dakota isn't given a level playing field to collect their taxes

no vote

#2: Leavitt attempted a valiant effort to salvage the work done by so many over 18 months by elevating to statements of principal rather than specific courses of action. He said that "nexus carveouts" were the sticking point of the business caucus proposal, but that the panel was pretty much in agreement on all the other matters. "We must ask, is the sales tax a viable tool for the 21st century? it might not be, unless there is radical simplification, and whether there will be permanent special privileges [caused by nexus carveouts]? or a level playing field? I hereby submit this "Proposal for Internet Tax Reform" written by David Pottruck" (not present at this time), specifying our views as such:

1. The Internet should not be a target for taxes.
2. Desire to reduce the digital divide.
3. Telecom taxation is excessive and discriminatory.
4. Must have enormous sensitivity to privacy concerns.
5. Recognition of the inevitable merging of virtual and physical worlds.

Parsons	this is a preamble, not a finding or recommendation
Gilmore	this is a justification for taxes on the Internet - I will vote no
Armstrong	this is intended as a preamble. it is a good idea, but premature to vote on at this time.
Pittman	it says it's a preamble! it is out of context. and nexus carveouts weren't the sole standout issue.
Norquist	Pottruck's staff just said he would oppose its submission.
Kirk	the key issue is fairness, non discrimination, and no special privileges; must emphasize how out of date the current system is
Locke	we support continuation of a moratorium; no access and telecom charges; clarification of nexus.

vote: 5-10-3

Concluding remarks:

Armstrong	time was the culprit. let's use the extension to complete what we've started.
Jones	issue is nexus. must avoid impacting income tax system.
Leavitt	admirable body
Lebrun	privilege to serve
Locke	need a level playing field. no income tax in WA
Norquist	interstate sales tax enforcement like tort law enforcement--can't!! example: "AL forcing MI..."
Parsons	state rights (nexus) is the sticking point
Pittman	very little in disagreement
Sokul	our job was to report on the issues to help Congress make choices. there was a lot of agreement, but state systems are a real problem.
Waitt	raised awareness on difficult issues. simplification is essential and states need a nudge
Pincus	the administration spent a lot of time trying to help bridge the gap
Gilmore	thank you, thank you, thank you "The Internet changes everything, even government."

Summary

So, the only resolution that was approved by the panel, after 18 months of deliberation, was the "need for increased attention to privacy issues related to eCommerce."

Upon reflection, they asserted that they are also essentially unanimous on a few other issues as well, such as

to eliminate the 3% federal excise tax on telecommunications that was created to fund the Spanish American War;
that legislation must both follow and lead international taxation policies;
that the "digital divide" must be eased;
that states must simplify their tax codes; and
that the ultimate solution must include minimal burden on taxpayers and be fair and equal to all forms of commerce.

The moratorium is likely to be extended another 5 years to allow for time to construct a "proper solution."

What has changed? not much.

Do remote vendors have to collect use taxes? No, not yet.

Will they eventually? Someday, but not for a long time still to come.