TCS Daily

TechCentralStation Host Jim Glassman interviws Gov. Jim Gilmore

By James K. Glassman - February 16, 2000 12:00 AM

TechCentralStation Host Jim Glassman: So, Governor, for online consumers that haven't heard of your proposal for cybertaxes, can you just give us the highlights?

Gov. Gilmore: Well, I sure can. I'm coming from a little different direction than the traditional approach. This is a new industry and a new opportunity, so I'm not looking at it the same way as the traditional people would. Traditional people would approach this as, "Gee, this is another area of commerce, it looks like commerce that is already taxed so we ought to tax this too and by the way, it'll get us a lot more revenue."

I, on the other hand, am looking at it quite differently. I think that it's an opportunity to grow a new industry, to create a better quality of life for working men and women and families across the country, and to give a tax cut by not extending taxation to a place where taxation presently doesn't exist.

My approach is, number one, to say that we should not have taxation on the Internet on remote sales, on business-to-consumer type purchases. That of course preserves some taxation within states that are not remote sales and also preserves the ability of states and localities to reach business taxes that ought to be paid for business-to-business transactions.

But, what I'm trying to achieve here is something that is good for people, for citizens, for working men and women, and for families. And that means that I think we should exempt these business-to-consumer transactions on remote sales.

Second of all, my proposal is to eliminate the 3% telephone tax that was originally imposed by the federal government to win the Spanish-American War. The Spanish-American War is over and we won and now it is time to eliminate that 3% tax.

I have also offered an incentive program to states and localities. Many of them are complaining that they are going to lose money as a result of no Internet taxation. I don't think that is the case at all, but just to be on the safe side, I have offered a 1% hold-back on this telephone tax for a period of three years with a grant being made to states and localities if they simplify the telephone taxes. That would help the entire industry if we had an incentive for simplification across the country.

Thirdly, I believe that we ought not to have taxes on access to the Internet, so if you pay your Internet service provider every month a $30.00 fee to be hooked up to the Internet, I don't think we should be taxing that. I think that we should not have tariffs on e-commerce that originates in the United States and we ought to seek to make this a global tax-free area. And I believe that the federal government should allow us to use surplus TANF money, which is Temporary Assistance to Needy Families money, in order to close the digital divide and make sure that poor people and people of less means have an opportunity to get on the Internet.

Jim: Do you believe, Governor, that one of the reasons that the Internet has boomed is because of its current, nearly tax-free, nature?

Gov. Gilmore: No, it's growing in an exciting way simply because of the newness and the ability to apply the productivity to all forms of economic activity. It is not blossoming because of lack of taxation; it is just simply growing because it is a new and exciting way for people to connect, to get information, and to have access to larger and larger markets and more and more goods and services.

I think what we should do is let it continue to grow and produce those kinds of benefits to the people of America, and not stifle it by putting on taxes.

There is no evidence that has been offered that we are going to reduce commercial activity in traditional retail stores and there is no evidence that has been produced that we are going to see the diminution of tax revenues. But there is solid evidence by polling and other information to consumers that there will be less usage of this medium if, in fact, taxes are imposed.

Jim: Now, some politicians and others who are on the other side, like to say that your plan is not really fair because shoppers at traditional brick-and-mortar stores have to pay sales taxes and shoppers in the equivalent on-line stores don't. How do you answer that?

Gov. Gilmore: Well, I think that my proposal is fair. It is just not identical. On the other hand, traditional brick-and-mortar activities are not identical to Internet taxation. So, I don't think that we have to treat people identically, but we do have to be fair and if you examine fairness in terms of retail merchants, let me be clear, I don't have any interest at all in hurting retail merchants. I think that they do a good job in this country, they are the backbone of the economy, and we appreciate what they are doing, but there is no evidence that brick-and-mortar retailers are going to be injured by a non-identical treatment of these two forms of commerce.

For example, retail merchants have advantages that the Internet can never match. The ability to see the customer. The ability for the customer to see and feel and touch and smell the product. The ability of the customer to buy it immediately without any type of delay. The ability of the customer if they are not quite happy with it to return it immediately and get a credit for it.

So, the marketplace really is in the hands of the retail merchants. They have advantages that can not be matched and in addition to that of course, typically service charges are imposed on e-commerce, which sort of evens it out.

So, the point is that none of this is identical. This is an entirely new form of commerce and we should make a separate and independent decision as to whether or not to extend taxation to it. My philosophy is that you don't tax something simply because it is there, you instead ask the question of state and government officials, "Is this new revenue needed?" If it is needed, then you can make an independent decision to tax it, but you don't tax it just because it is there. We should not extend taxes unless we have to.

Jim: Well, on the issue of whether it is needed, currently, the states in the aggregate are running very large surpluses, but that might not last. What if we get into a situation where local fire or police departments can't survive without these taxes? Would you be in favor of them then?

Gov. Gilmore: To impose taxation on that basis now is sheer speculation. Right now we know that e-commerce is growing and we see no reduction of our sales tax revenues for states and localities. As a matter of fact, they are running big surpluses now. And, I think that the economic models have not had time to mature so that we can understand exactly what is going to happen. It could very well be the case that people will go on the Internet, learn about new products, understand what is available, and then turn around and go downtown and buy things.

Furthermore, we should not overlook the fact that traditional retailers have the ability to go into "click-and-mortar" type businesses too so they can do commerce over the Internet and at the same time have their traditional brick-and-mortar stores and serve both marketplaces. That is, in fact, exactly what is happening and what I would expect.

Jim: Now, you have come up with a plan which I think consumers can love, but how are you going to be able to convince, let's say, your fellow governors?

Gov. Gilmore: Well, first of all, people in public office who are interested in working men and women and families and the little people out there that really need the help of the Internet, are in fact supporting my kind of proposal and several of the governors, particularly the Governor of Massachusetts and the Governor of Colorado are very much in support of the proposals that I am putting forward.

I think that many people in public life have simply been misled or frightened into thinking that somehow some catastrophe is going to befall the public purse. There is no evidence of that and people who would legislate taxation on this basis are doing it without proper foundation, at least at this point.

Jim: Governor, are you at all disappointed with the lack of anti-cybertax fervor, let's say, among the high-tech companies?

Gov. Gilmore: Well, certainly, many of the high-tech companies would like to see the elimination of the 3% sales tax on telecommunications and they want to make sure that there is no taxation on access on the Internet. I certainly would like to see more vigorous support of the individual customers and consumers that are, in fact, the customers of these companies, because they are the only ones that pay the sales tax.

I think that this is a very important concept. Many people talk about taxation on local businesses and taxation on Internet businesses. There is no taxation on either of those businesses. There is only taxation upon the people, upon the working consumers. They are the ones that pay the sales tax.

So, someone has to stand up for the consumers. I'm doing that and I believe that the companies ought to do that on behalf of their customers. And I believe that everybody could get together here and decide that this is a creative and forward-looking approach that extends a benefit in the tax cut to the people of this country. We don't have to take something that is entirely new and think of it in old ways.

This is a chance to be creative, be forward-looking and to take an opportunity to do something that is new and good for the people of America.

Jim: Tell us about Virginia. What do you think would be the impact on your state if new taxes were applied to the Internet and then on the other hand if there are no new taxes applied to the Internet?

Gov. Gilmore: If there are no new taxes applied to the Internet, our sales tax is just going to keep cranking right along. There is no evidence that there is going to be any diminution of it. Right now, it represents about 20% of our budget and it is going up and we don't see any reason to believe that it won't go up.

If we eliminated the taxes as I have proposed, we would forego the use tax in this state, which is that tax that we impose upon our own citizens for doing out-of-state transactions. We estimate here in Virginia, that out of a 48 billion dollar budget, less than 1 million dollars is represented in that use tax. I think that we could forego that.

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