Panel to Ask Congress to Extend Internet Tax Ban

A U.S. Internet tax study panel on Thursday adopted a report asking Congress to extend for five years a ban on new Internet taxes, cementing a victory for Gateway Inc., America Online Inc. and the panel’s anti-tax members.

Deputy Treasury Secretary Stuart Eizenstat accused the Advisory Commission on Electronic Commerce of adopting a slanted, anti-tax report that “ignored the views” of Utah Gov. Mike Leavitt and local government officials who opposed the anti-tax plan. “The body of the report includes only a slanted discussion,” Eizenstat said.

The commission was divided between anti-tax forces, such as Virginia Gov. James S. Gilmore and Internet merchants who want to keep Web commerce tax-free, and Leavitt’s group of local officials, the Clinton administration and traditional retailers who say they’re subsidizing Internet businesses. Opponents of the moratorium also fear an erosion of tax revenue needed for police and other services.

Gilmore, the commission’s chairman, and a six-member group of businesses, including Charles Schwab Corp., America Online and AT&T; Corp., prevailed.

The commission voted 10 to 8 to approve the report, which also asks Congress to simplify state and local sales taxes and exempt from sales taxes digitally delivered products and their physical equivalents, such as books and CDs. It also calls for the repeal of a 3% telecommunications excise tax.

Gilmore said House Speaker J. Dennis Hastert (R-Ill.) and Majority Leader Dick Armey (R-Texas) are working on a bill to extend and expand the existing Internet tax moratorium.

“Already, this is resonating in Congress,” Gilmore said in a telephone conference call with the 19-member commission. “We believe there is going to be intense discussion about this.”

The panel officially adjourned and will send its report to Congress, perhaps as early as April 12.

Armey spokeswoman Michelle Davis said she expects legislation to “sail through” because a tax-free Internet is a politically popular issue with Democrats and Republicans.

Already, bills are pending in the House and Senate to extend the Internet tax moratorium and repeal the telecommunications excise tax.

The commission’s final meeting dealt with disputes over adopting the final report and the desire of a local government faction led by Leavitt to include more minority views. The meeting didn’t address behind-the-scenes efforts by AT&T; Chairman Michael Armstrong and Gateway Chairman Ted Waitt to narrow differences and give states more leeway to simplify sales taxes.