Governors continue to spar over Internet taxes

The governors of Massachusetts and Michigan argued on opposing sides of the Internet taxation debate before the U.S. Senate Budget Committee Wednesday, while across town Virginia Gov. James Gilmore, chairman of the federal commission charged with filing a definitive report on the subject, reiterated his anti-tax message.

Michigan Gov. Paul Engler, in Washington, D.C., representing the National Governors' Association, said that continuing to not collect sales and use taxes on Internet sales would cripple state and local economies. The Republican governor said proposed legislation by some federal lawmakers to permanently ban taxes on Internet transactions would pre-empt existing state and local sales and use taxes.

"This legislation would be an unprecedented infringement upon the states' ability to raise revenues necessary to carry out state functions, much less compel the federal government to provide state tax loopholes," Engler said, adding that the proposed rules would severely hinder traditional retailers. "It is, in essence, a two-tiered system: good for clicks, bad for bricks."

The NGA has its own proposal that calls for a voluntary, "zero-burden" system that would rely on a trusted third party vendor to help states collect sales taxes on Internet transactions.

Massachusetts Gov. Paul Celluci, also a Republican, disputed Engler's claim that traditional retailers have been hurt by electronic commerce. He called on Congress to enact a permanent ban on all Internet-related taxes.

"Since the plan is voluntary, there is no way to guarantee full participation. And without [that] we would have a much more disjointed and arbitrary system than exists today," Celluci said. "Today's world is mobile and boundaries are disappearing everyday. These taxes were established in the 1930s, which predate the Information Age and the convenience it has brought to the citizens of the country."

Across town at the National Press Club, Gilmore echoed Celluci's sentiments. "Government ought not tax everything it can get, it ought to tax everything it needs," he said. "I am against sales taxes for remote sales from businesses to individuals."

Gilmore, chairman of the federal Advisory Commission on Electronic Commerce, said he doubted that the group would come to any kind of unanimous conclusion on the issue by March, when it is scheduled to issue a report to Congress.