Wes Vernon, NewsMax.com
Saturday, Aug. 25, 2001

Virginia Gov. James Gilmore is among the small contingent of dissenters. He argues the "drive to squeeze every last tax dollar out of Internet shopping isn’t about voters, fairness, simplification, harmony or financing highways. It is about public power.”

After all, the National Governors Association and organizations of mayors and county executives "have a lot of power, a good share of it derived from sales tax revenues. Naturally, they want more,” Gilmore adds.

His 44 colleagues, after their recent annual meeting in Providence, R.I., fired off a letter to all members of Congress arguing that "online and catalogue sellers … have a significant price advantage over Main Street businesses that must collect a sales tax on all transactions.”

A 1992 decision by the U.S. Supreme Court said states can require only those sellers that have a physical presence or "nexus” in the same state as the consumer to collect so-called use taxes. When the seller is not in the same state as the consumer, the consumer is required to do the math and calculate how much he owes and send it in to the state at the end of the year.

The governors complain that most consumers don’t know they’re supposed to pay, and the states have no way of enforcing this procedure.

Given the propensity of governments to "tax everything that moves,” some consumers and privacy advocates only half-jokingly hope this complaint won’t inspire the notion of putting a tax cop at everyone’s computer.

"If you care about a level playing field for Main Street retail businesses and local control of states, local governments, and schools, extend the [congressionally imposed] moratorium on taxing Internet access ONLY with authorization for the states to streamline and simplify the existing sales tax system,” the 44 governors tell Congress. "To do otherwise perpetuates a fundamental inequity and ignores a growing problem.”

Nonsense, says Gilmore.

Hurting Economic Growth

"By burdening Internet consumers with new tax burdens, by imposing new tax collection millstones upon Internet-based entrepreneurs, or reporting all sales transactions to third-party tax collection agents of the government who would view the private purchases of each consumer, the evidence is clear that government would severely inhibit the economic growth of the Internet economy and particularly impact small Internet consumers and producers,” the popular Virginia chief executive says.

Survey after survey has confirmed that sales on the Internet would decline considerably if sales taxes were imposed. University of Chicago professor Austin Goolsbee has presented "compelling evidence” (Gov. Gilmore’s term) that the volume of Internet sales would decline by 30 percent.

And for all that economic damage, the "tradeoff” would be a national increase in sales tax collections of no more than 1.4 percent, according to Goolsbee. But the damage to the economy would far outpace that. Further, many of the people buying on the Internet are folks who would otherwise be shopping through catalogues. So even much of the 1.4 percent represents a revenue-neutral shift.

This whole controversy, of course, is much older than the Internet. It goes at least back to the 19th century, when Main Street businesses complained about catalog sales. This reporter covered many Washington news conferences, in the pre-Internet days, where governors, mayors and county officials were complaining about mail orders from retail stores to out-of-state customers avoiding the state sales tax.

Gov. Gilmore says aside from the fact that "there’s little evidence that shopping malls and Main Streets will be put out of business by the Internet,” retailers in these locations are themselves using this new medium. That, he says, should "level the playing field” to the extent that it needs to be "leveled.”

Next to Be Taxed: Your Internet Access?

The issue threatens efforts to extend a ban on Internet access fees, which expires Oct. 21, the Wall Street Journal has reported.

As furnished by the National Governors Association, here is the list of the 44 governors who want you to fork over more of your money to their coffers through Internet sales:

Johnson, N.M.; King, Maine; Wise, W.Va.; Glendening, Md.; Geringer, Wyo.; Leavitt, Utah (a ringleader on this); Siegelman, Ala.; Vlisack, Iowa; Johanns, Neb.; Holden, Mo.; O’Bannon, Ind.; Graves, Kan.; Engler, Mich.; Rowland, Conn.; Easley, N.C.; Sunia, American Samoa; Ryan, Ill.; Martz, Mont.;

Di Francesco, N.J.; Guinn, Nev.; Sundquist, Tenn.; McCallum, Wis.; Janklow, S.D.; Locke, Wash.; Hoeven, N.D.; Musgrove, Miss.; Kempthorne, Idaho; Foster, La.; Huckabee, Ark.; Almond, R.I.; Keating, Okla.; Ridge, Pa.; Patton, Ky; Taft, Ohio; Dean, Vt.; Hodges, S.C.; Hull, Ariz.; Cayetano, Hawaii; Gutierrez, Guam; Bush, Fla.; Ventura, Minn; Kitzhaber, Ore.; Knowles, Alaska; Perry, Texas.

Obviously, this impressive lineup leaves Virginia’s Gilmore as the leader of a small band of dissenters. The governors traditionally maintain a camaraderie that avoids public spats among themselves. But it is believed that his courageous position against the Internet tax may have cost Gilmore the presidency of the National Governors Association. It is also believed that Utah’s Mike Leavitt, out front in favor of the tax, played no small part in preventing Gilmore’s ascent up the ladder of the NGA leadership.

Once again, it is clearly shown that politicians who stand up for the taxpayers are unpopular with everyone but the people.

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