UT Economist Advises Congress on E-Commerce Tax

WASHINGTON, D.C. — Support may be building for a tax on e-commerce, a University of Tennessee economist said Thursday after testifying before Congress.

Dr. Donald Bruce spoke this week to the Senate Committee on Commerce, Science, and Transportation on whether or not the Internet Tax Freedom Act, which bans taxes on e-commerce and expires next year, should be extended to 2006.

Bruce presented data from his study with UT economist Dr. Bill Fox that projects state and local governments will lose $11 billion in tax revenues from untaxed e-commerce by 2003.

Supporters of the ban say a tax would hurt the economy and slow Internet growth. Their cause was strengthened last month when a federal advisory panel voted in favor of extending the ban.

But the tide may now have turned, Bruce said.

Legislation from Sen. John McCain (R-Ariz.) to extend the ban was pulled Wednesday from Senate consideration. That withdrawal and congressional reaction to the UT study data indicate a shift in the Internet tax debate, Bruce said.

“Most people thought this bill to extend the moratorium on e-commerce taxes was on a fast track, that this hearing was just a formality and the vote had already been taken,” Bruce said.

“That (withdrawal of the McCain bill) is a sign that the wind has started to shift on this issue. We’ve still got a long way to go, but I think Senate committee members are starting to think about this as an issue for state and local governments and not just an anti-tax issue.”

The UT study recommends that federal and state governments work together to create a fair, simplified sales tax structure that includes e-commerce taxes.

The study estimates that Tennessee will be among the states hardest hit by tax revenue losses due to e-commerce, losing $293 million by 2003.

“Extending the moratorium through 2006 delays any cooperative effort between the federal and state governments to simplify sales taxation, and makes it more difficult for states to collect sales taxes,” Bruce said. “Our research shows that revenue losses to state and local governments will grow dramatically under the status quo.

“Now is the time to act on this issue, because it’s going to be a monster in a just a couple of years.”