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Letter to President Bush on the Administration's Position on a Permanent Extension of the Moratorium on Internet Access Taxes.
April 23, 2001
The Honorable George W. Bush
President
The White House
Washington, DC 20500
Dear Mr. President:
We write on behalf of the National Conference of State Legislatures (NCSL) to express our strong dismay with the comments attributed to Vice President Richard Cheney during a meeting on April 18th with high-tech business leaders. Press reports indicated that the Vice President expressed the Administration's support for a permanent ban on state and local taxation of Internet access. We are baffled and concerned that this statement of support by the Vice President is significantly different from your own stated position. We would welcome the opportunity to work with you and your Administration to fashion consensus legislation that protects state sovereignty and enhances the climate for the new economy.
In 1998, NCSL did not oppose the enactment of the Internet Tax Freedom Act. We acknowledged the need for a "short time out" for what was then still a fledgling industry. In the almost three years since the start of the moratorium on Internet access taxes, electronic commerce has grown beyond all expectations and forecasts. Last year during the congressional debate on extending the moratorium we asked Congress to give their colleagues in state and local government one sound public policy reason as to why the moratorium needs to be extended. We did not get an answer then and we doubt there is one this year.
Today, we know Internet access generally refers to the $19.95 (+/-) consumers pay for their monthly access to the "net" through America Online, Mindspring, Microsoft and so on. However, as we witness the convergence of technologies and the merger of industry giants, what we call "Internet access" is beginning to cover a number of other technologies and services. Consumers can now receive their telephone, cable television and Internet service from the same vendor. The vendor could bundle all these services for one price under the banner of Internet access. If states and local governments are prohibited from ever taxing Internet access, then states and localities will have to find new revenue sources to make up for the loss from not being able to tax telephone and/or cable services.
A permanent ban on Internet access taxes would also mean the repeal of the grandfather clause included in the Internet Tax Freedom Act which protected states such as Texas that was already collecting a tax on Internet access over $25 a month. It is our understanding that Texas' tax on Internet access accounted for $50 million in state revenues in fiscal year 2000. The Comptroller's Office estimates that this figure could rise to as much as $ 200 million in 2004. Other states that would face immediate revenue loss if the grandfather clause was repealed are Connecticut, New Hampshire, New Mexico, North Dakota, Ohio, Tennessee, Washington and Wisconsin.
On the eve of the congressional vote last year, the Congressional Budget Office stated that, "by extending and expanding the moratorium on certain types of state and local taxes, the bill would impose an intergovernmental mandate as defined in the Unfunded Mandates Reform Act (UMRA)." As a former Governor and a leading figure in the fight in 1995 to have Congress enact UMRA, we call upon you to rectify the statement made by the Vice President and respectfully request that you clearly define the Administration's position on the extension of the moratorium and the repeal of the grandfather clause.
We also are concerned about reports that the Vice President would like to extend the moratorium to include state and local sales taxes on electronic commerce transactions. The current moratorium does not include sales taxes. To ban taxation of sales over the Internet would further erode state and local government revenue bases, especially for states like Texas that do not have an income tax and rely on sales tax for over half of their revenue.
The National Conference of State Legislatures acknowledges that the present state and local sales and use tax collections systems are burdensome and complex. State legislators have worked with governors, county executives and mayors, as well as retail merchants across the country to develop the Streamlined Sales and Use Tax Collection System for the 21st Century. This new system will allow states to reduce or eliminate the costs and burdens of sales tax compliance for all sellers. The key features of the proposal are simplification of sales and use tax laws and administration, the use of technology for calculating, collecting, reporting and/or paying the tax through "certified" tax calculation service providers, and the state assumption of the costs of the system. Participation by remote sellers will be voluntary.
Since last year 32 states have formally met in multistate discussions on developing a streamlined sales and use tax collection system. The participating states are: Alabama, Arkansas, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, West Virginia, Washington, Wisconsin and Wyoming.
This unprecedented action by the states has continued and over 25 states have introduced legislation this year to continue the simplification process. Elected state officials have recognized the problem and are working together to develop the solution. States have demonstrated their commitment to simplification and should have the opportunity to simplify their sales and use tax systems without federal interference or congressional mandates specifying state sales tax rules and regulations.
As Governor of Texas, you were one of the leaders in the return of responsibilities to state governments, the movement that became known as devolution. The National Conference of State Legislatures was proud to be a major part of that effort as well. We are fearful that a permanent moratorium on taxation of Internet access or a ban on taxation of sales over the Internet would be devastating to state revenue systems, would return states to the position of dependents of the federal government, and would wreck the major advances we have jointly made in our federal system over the past decade.
We appreciate this opportunity to express our position on this vital issue of economic importance to the states and NCSL's top priority. We stand ready to meet with you or representatives of your Administration to discuss these issues and are willing to work towards a viable solution that does not hamper the growth of electronic commerce nor cause severe financial burdens on state and local governments.
Sincerely,
Senator Jim Costa
California
President, NCSL
Senator Stephen Saland
New York
President-elect, NCSL
Senator Steven Rauschenberger
Illinois
Co-Chair, NCSL Task Force on
State and Local Taxation of E-Commerce
Representative Matthew Kisber
Tennessee
Co-Chair, NCSL Task Force on
State and Local Taxation of E-Commerce
 Commerce and Communications
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