How Not to Tax the Internet

Shortly after the birth of our nation, we faced challenges similar to the ones we face today with growth of the Internet - a vast frontier much like the uncharted territories of the West.

Like the trials of pioneering new territories, the guiding principles we apply in meeting the challenges of a new "Information Age" and defining the proper role of government in our lives will affect generations to come.

Governors are harnessing the enormous power of the Internet to make state government more efficient and responsive with distance learning, education networks, telemedicine, online services and information banks, workforce development networks, and crime-tracking databases.

The Internet is rapidly changing American life. A new study from the US Department of Commerce finds that electronic commerce grew more than 700 percent during the last five years. Internet traffic doubles every 100 days. Just four years after the Internet was opened to the public, 50 million people were connected to it. It took radio 38 years to reach that mark, and television 13 years. The Internet is also proving to be a fertile ground for business. Sales on the Internet are expected to surpass $300 billion by 2002.

This Internet growth explosion knows no boundaries - municipal, state, or national. An electronic commerce network that is simultaneously everywhere and nowhere obviously creates serious complications for state and local tax systems. Governors recognize that Internet business transcends state borders and believe that businesses should not be expected to keep track of different rules for 6,000 taxing jurisdictions. To achieve a fair, efficient system of electronic commerce for the 21st century, governors are actively working to create simplified sales tax systems for remote commerce.

However, some proposals in Congress would undermine these state efforts to create a fair, simple tax system, and instead create a tax haven for select businesses, leaving Main Street business and other taxpayers with the tab. While the Internet is a wonderful, invigorating new medium, it shouldn't be singled out for a tax break at the expense of shopping malls, Main Street, and other taxpayers.

Governors are working with their partners on Capitol Hill to sustain the technological vitality and vigor of Internet business and services in the states to meet the needs of the 21st century marketplace, without sacrificing fairness. To achieve that goal, we propose a three-point plan:

* A streamlined sales-tax system for remote commerce to remove the shackles of an outdated, burdensome system and ensure that American businesses, government, and consumers are well-positioned to prosper in the global marketplace.

* No new taxes on the Internet. To promote the enormous potential of the Internet, state and local leaders support a three-year moratorium on new taxes that apply to the Internet.

* A level playing field for businesses and citizens. State and local leaders advocate treating businesses equally whether they sell goods in a store, on the phone, or on the Net.

Federal legislation to create a tax haven for Internet corporations at the expense of Main Street business and other taxpayers is shortsighted and irresponsible. Such loopholes will sap funds for critical services provided by state and local governments, such as crime prevention, health care, and education.

Liberating America from discriminatory taxes on the Internet is a goal shared by governors. In fact, not a single state or local government raised taxes on the Internet, and in this year alone, six states removed or lowered Internet taxes. Several other states are poised to follow.

The Internet holds enormous potential for economic development, education, and government services, and governors have a commitment to ensuring that state tax policies are not a barrier to growth.

The nation's governors urge Congress to recognize the foresight and constructive solution contained in the proposal backed by state and local leaders. It has the bipartisan support of governors, county executives, mayors, and city officials and represents the kind of solutions that position our states for the next century.

* Terry E. Branstad is the Republican governor of Iowa and Bob Miller is the Democratic governor of Nevada. This article originally appeared on the National Governor's Association Web site.