End Silicon's Free Ride

Mom and pop need to get in the game if they want to keep their Main Street shops on a level playing field with the dot.com retailers on the Silicon Freeway.

Congress appears determined to make sure that "e-commerce" retailers on the Internet keep their advantage over mom-and-pop stores in your local community. The House Judiciary Committee, without hearings, on May 4 rushed ahead with a bill that would extend the moratorium on Internet sales taxes for five more years after the current moratorium ends in October 2001. Despite concerns of the nation's governors and city officials who stand to lose billions in tax revenues, as well as small business owners who would remain at a competitive disadvantage to Internet retailers who don't charge sales tax, the House leadership apparently has put HR 3709 by Christopher Cox, R-Calif., on a fast track for approval this spring.

[NOTE: As this went to press the House on May 10 approved HR 3709 on a vote of 352-75.]

The advantage for online retailers doesn't seem to bother the Republican-oriented National Federation of Independent Businesses, which called the GOP-led effort a "high-tech vision" on its web site. Instead, the bipartisan National Governors Association has led the fight to slow down this assault on the state and local revenue base and protect the interests of local retailers. Sales and gross receipts taxes now account for nearly half of state government revenue but a University of Tennessee study forecast that the loss of state sales tax revenues could reach $20 billion annually by 2003. That means if Internet retailers don't cough up sales taxes, states and local governments will have to either increase other taxes -- income and/or property taxes -- or slash services.

When it passed the first three-year moratorium in 1998, Congress set up an Advisory Commission on E-Commerce with 19 members. It included eight from states and local governments, eight from Internet-related corporations and three from the administration. Tellingly, the commission did not include representatives from brick-and-mortar stores.

Despite a mandate to come back with a consensus, the commission was unable to reach the two-thirds supermajority to make formal recommendations. Instead, on an 11-8 vote the commission approved a report written by the "Business Caucus," representatives of AT&T, Charles Schwab, MCI, AOL, Time-Warner and Gateway, that sought the continued sales tax exemption. Despite the opposition of 42 governors, Congress, with re-elections to finance, is poised to grant the extension with bipartisan support. The only question is whether it would be made permanent, as Sen. John McCain proposes.

Make no mistake: We don't like sales taxes, which are among the most regressive forms of taxation; they hit poor people hardest, there is no doubt. We don't have any problem with other bills to prohibit tax on Internet access and to repeal the 3 percent telephone excise tax. But exempting sales on the Internet only gives a break to people who have Internet connections and credit cards that enable them to order their goods online. Poor people who lack a PC and those who prefer to patronize local businesses still must pay the sales tax.

Bookstore owners complain that people browse their shelves to find books that interest them, then order the books from Amazon.com. The same goes for practically all goods that are now offered for sale online. Internet retailers offer inventories that are unmatchable locally, and hard-to-find products that might require a lengthy search of local stores are available with the click of a computer mouse and are delivered to your home or office. The buyer of a new computer can save hundreds of dollars in sales tax by making the purchase online. But locally owned stores have enough problems competing with the chain stores and the "category killers," who are able to get discounts on their merchandise that are unavailable to smaller retailers, without giving Amazon.com, Dell and their online competitors the advantage of not charging the sales tax.

Under current law, retailers are required to collect sales taxes only for states in which they have a physical plant, such as a store, warehouse or service center. But some retailers set up separate corporate entities to handle online sales so they don't have to collect taxes outside of the state where they have their warehouse. People who buy products from out of state are supposed to remit the sales tax to their respective state, but that requirement is roundly ignored.

Electronic commerce should be treated no differently from other commerce. Remote sales, including online sales, should be taxed at the rate set by the state of the destination of the sale (the buyer) and remitted by the retailer. Software that computes individual sales taxes for each state already exists and could be made available to online retailers. Exceptions could be made for small-scale retailers.

Members of Congress are looking toward the deep pockets of high-tech companies to finance their re-elections this fall. But it's not too much to ask that online retailers collect the same taxes that Main Street retailers do. Regular citizens may have to remind their Congress members that their first responsibility is to Main Street, not the Silicon Freeway. Call Congress at 202-224-3121and make your views known.

April 30 was the 25th anniversary of the end of the war in Vietnam. The 30th anniversary of the Kent State University massacre followed on May 4. Historians and commentators have been revisiting the theme of who won the war and who lost the war, and whether it was a noble cause, while most of us would rather forget about it.

For kids now leaving high school the events surrounding Vietnam are as remote as World War II was when I was growing up in the late '60s. They need to know about the ill-starred conflict that cost us our innocence and our confidence in government as well as 58,197 dead, 153,000 wounded and countless others emotionally scarred.

In the years since the last helicopter full of American refugees pulled up from the roof of the American Embassy in what was then Saigon, we have learned that the Gulf of Tonkin incident, in which a US warship supposedly was attacked by North Vietnamese gunboats, was fabricated to justify sending US troops into the fight. War never actually was declared, but working-class kids were drafted and sent to fight while college students got deferments. In the past few years we have discovered that many of the original prosecutors of the conflict had their own doubts, including Defense Secretary Robert McNamara and President Lyndon Johnson as the American presence grew. Johnson regretted that he had to throttle down his Great Society domestic initiatives to pay for the war in Vietnam. Richard Nixon was elected in 1968 with the promise of a secret plan to end the war. Instead Nixon and Henry Kissinger expanded the war to Cambodia and Laos.

As resistance began to grow, protesters were vilified, spied upon and assaulted in the streets. Unarmed students at Kent State University who protested the expansion of the war were fired upon by National Guardsmen and four students were shot dead. Nixon blamed the students, despite the fact that they were no threat and they were 90 to 130 yards away from the Guardsmen when they were shot. One was on her way to a speech therapy class. In 1972, Nixon promised that peace was at hand, but the war went on even after he won re-election.

Nixon and Kissinger's incursions into Cambodia and Laos destabilized those neighboring governments, with disastrous results. We discovered that not only was Vietnam not the pawn of China, as we were told, but that North Vietnamese leaders hated the Chinese, and the two neighbors would fight their own war a few years after the US cleared out. And we have continued to fight wars for dubious reasons without getting declarations from Congress.

What is the lesson from Vietnam? As Jefferson said, eternal vigilance is the price of liberty, but plainly we've been asleep too long. We have lowered our expectations of our elected officials. We need to demand better. -- JMC

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