Leavitt Leads Net Tax Charge

by Joanna Glasner

3:00 a.m. 8.Mar.2000 PST

REDWOOD CITY, California -- Utah Governor Mike Leavitt, a longtime opponent of tax exemptions for Internet sales, said he no longer expects government legislators to be the driving force in deciding how to regulate online purchases.

Instead Leavitt expects the push will come from offline retailers, who will resent privileges cut out for their Internet brethren.

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"The debate is not quite ripe yet because the major retail players are just starting to realize how unfair this is going to be to them," said Leavitt, speaking Tuesday at Oracle headquarters here.

He predicts major offline retailers will intensify lobbying campaigns early next year, when yet another huge spike in online gift purchases makes traditional stores worry about losing business to dot-coms.

As a member of the Advisory Commission on Electronic Commerce, a group of business and government leaders drafting recommendations for e-commerce policy, Leavitt has strongly opposed the tax exemptions currently enjoyed by online retailers.

He said it's unfair for online retailers to get a special exemption from paying taxes levied by local and state governments.

However, Leavitts views havent always meshed with others on the commission. In a draft advisory submitted in December, a subcommittee concluded that "at this time it does not appear that there is any compelling reason to impose taxes exclusively targeted at electronic commerce."

Leavitts comments, which coincided with Super Tuesday election primaries in 15 states and American Samoa, also came two weeks before the next advisory commission meeting, at which members are expected to lay out a report delineating guidelines for legislators.

The Utah governor declined to predict what the report would say. However, he did expect that it will have little if any impact on congressional legislation this year.

Although Congress will probably draft some e-commerce-related bills, Leavitt said he didnt expect any substantial legislation to pass in this image-conscious election year. That wont happen until next year at the earliest, when online gift buying surges another 400 percent, and traditional retailers realize they face a serious disadvantage from being forced to levy a 7 percent sales tax, he said.

"Theyre going to storm Capitol Hill with one phrase on their lips: level playing field," he said.

But dont expect it to be a simple issue of whether to tax or not to tax the Net.

Part of the problem will be defining what is an Internet purchase, especially for retailers who sell both online and in stores.

There are a variety of complex questions. For example: Does it count if a customer places an order over the Internet and picks it up at a store? Does granting a blanket tax exemption for online purchases motivate retailers and customers to try all kinds of creative maneuvers to avoid paying that extra 7 percent or so?

"What if they were to hook the Wal-Mart cash register to the Internet?" Leavitt asked.

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-- Jen Bunker (jen@bunkergroup.com), March 08, 2000