The Skinny on E-Commerce Taxation - TheStreet

The Skinny on E-Commerce Taxation

Also, Seymour says bricks-and-mortar out-scored dot-coms in the Super Bowl adfest.
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Have you been following what's going on in Internet taxation plans?

If you hold any of the B2C, or business-to-consumer, stocks, you'd better be. Because some of the forces now being unleashed in tax-land could substantially revalue your holdings. And not upward.

A little history:

In 1998,

Congress

passed the

Internet Tax Freedom Act

, which established a moratorium on new taxes, on any level, until 2001. A federal advisory group, the

Advisory Commission on Electronic Commerce

, or ACEC, was set up to consider what to do about taxing sales over the Internet.

Local retailers had been screaming that the tax-free status of Internet purchases was going to kill them; it was an unfair advantage for online merchants, etc. And many state attorneys general and their governors were up in arms as well. For them, the rise of e-commerce meant an inevitable loss of sales-tax revenue, which, for many states, is a critical part of state-government funding.

On the Internet side, online merchants complained that they couldn't -- and shouldn't -- be asked to serve as tax collectors for 50 states, with the immense jumble of varying rates and conditions. Including the local, city, county and metro-area sales-tax rules, there are 7,600 separate sales-taxing jurisdictions in the U.S. -- with almost that many variations in rates and policies.

Moreover, the refrain went, taxing something as young and frail as the newborn Internet economy would surely retard its growth, if not kill the baby outright.

Tech Savvy:

TSC message boards.

It's a little hard now to claim that e-commerce is so young and fragile, but arguments over whether to tax Net sales are still raging. The issue has, in this presidential-election year, become politicized, with

George W. Bush

and

Al Gore

both supporting extending the moratorium. Arizona senator

John McCain

, whose primary campaign in New Hampshire has roared to life, says he wants to ban all taxes on all Net sales, forever.

Meanwhile, the ACEC, charged with suggesting a solution to Congress by an April deadline, has continued to plug away, if often more as a debating body than as a working group trying to hammer out a recommendation.

One of the interesting sideshows at the ACEC has been the performance of Virginia's Republican Governor James Gilmore III. With a reputation as a conservative opposed to new taxes, he has not disappointed Internet leaders who saw in him an ally.

Happily, Gilmore has resisted local and state officials' knee-jerk response that if we have local and state sales taxes now, we should automatically extend those to new forms of commerce, such as sales over the Net. Local merchants should stop whining about losing sales to Web-based businesses, he suggests, and start their own Web initiatives.

Gilmore's position has a distinct "pull-yourselves-up-by-your-bootstraps" flavor, and accordingly, plays well in the intensely entrepreneurial Internet community.

Gilmore's counterpoise on the ACEC has been Utah's Republican Governor Michael Leavitt, who has emerged as a leader of those who want the 46 states which now charge sales tax to be able to extend their tax-collecting efforts to Net sales. To his credit, Leavitt doesn't oppose Gilmore in an absolute way -- that is, arguing for automatically moving existing taxes, in their present form, to the Net. Rather, he wants state and local jurisdictions to be required to first simplify and standardize their tax rates and rules, after which they would be applied uniformly to both in-store and Net sales.

In the last couple of days, word has leaked of a behind-the-scenes compromise being engineered by such dot-com forces as

Charles Schwab

(SCH)

and

America Online

(AOL)

. It calls for an extension of the provisions of the Internet Tax Freedom Act for another five years, during which time the states would have to simplify their sales-tax structures, per Leavitt, in return for being allowed to collect taxes on Net sales.

Are Net taxes inevitable? Who won the Super Bowl adfest? Click here to read the conclusion of this column.

Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour was long E*Trade, although positions can change at any time. Seymour does not write about companies that are, or have been recently, consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites your feedback at

jseymour@thestreet.com.