Originally created 11/17/99

Leavitt, Gilmore split underscores divide on Internet sales taxes



WASHINGTON -- Normally ideological allies, Republican Govs. Mike Leavitt of Utah and Jim Gilmore of Virginia are at odds over Internet sales taxes, underscoring a national divide.

Leavitt, the current chairman of the National Governors' Association, believes existing sales taxes should be collected on goods sold over the Internet, just as they are at retail stores in most states.

Gilmore, chairman of a congressional Internet tax advisory panel on which Leavitt is a member, wants to prevent sales taxes on most e-commerce and eliminate any other special taxes that impede the medium's growth.

Their disagreement mirrors the national debate involving billions of dollars in commerce that has split political parties, become an issue in the 2000 presidential race and pitted government officials against high-tech entrepreneurs.

In a speech Tuesday at the National Press Club, Leavitt outlined a plan for states to phase in a voluntary, simplified e-commerce tax system in which a "trusted third party" would use computer software to calculate, collect and distribute sales tax dollars based on the location of the purchaser.

"Everyone despises taxes," Leavitt said. "But if we have to have them, they have to be fair."

Leavitt's plan, which he will propose to the 19-member Advisory Commission on Electronic Commerce at its December meeting in San Francisco, is endorsed by several other GOP and Democratic governors, including GOP Gov. Tommy Thompson of Wisconsin and Democratic Gov. Parris Glendening of Maryland.

Other backers include organizations representing state and local governments that fear loss of future revenue. Leavitt said he expects support eventually from major "bricks and mortar" retailers as they join the e-commerce economy and find themselves at a competitive disadvantage because of their sales tax collection burden at dozens of stores.

"This is about fair play," he said.

Gilmore, however, wants the commission to endorse his proposal to prevent all taxes on remote Internet sales and remove a current federal excise tax on telephone service. Gilmore and his supporters say the Internet must be permitted to prosper without government interference.

"It can be summarized in three words: No Internet tax," Gilmore said Monday in a speech to an Internet commerce forum. "Can you hear the people chanting?"

Gilmore's view is backed by Sen. John McCain of Arizona, the GOP presidential candidate who helped push through Congress a three-year moratorium on new Internet taxes that also created the advisory panel. Most GOP House leaders also endorse the no-tax position.

Republican presidential front-runner George W. Bush, the governor of Texas, has not taken a position on the issue, a spokeswoman said Tuesday. Bush is in a difficult position because, as a governor, he must be concerned about protecting states' rights and revenue, but as a candidate, he could face political difficulties if he endorsed new taxes.

In making his political case, Leavitt said Republicans should remember that tax policy is the only way state and local governments can control how they spend money on their schools, roads, police and environment programs. If pressure grows for a national system, he said, Congress and the Internal Revenue Service will have more of that control.

"I am somewhat surprised by some of my colleagues in the Republican Party," Leavitt said. "The states have to come up with a solution here."