Clinton Backs Internet Tax Break

President Clinton told Silicon Valley business leaders Thursday he will support a five-year freeze on any new taxes on sales of merchandise over the Internet.

Clinton called for passage of the proposed Internet Tax Freedom Act, which would set a five-year tax moratorium on "discriminatory" taxation of e-commerce sales.

"I think both parties will support this legislation," he told the BancAmerica Robertson Stephens technology conference.

Industry analysts and fund managers in the audience welcomed the endorsement from an administration that has been a consistently strong ally of the electronic commerce business.

Clinton and Vice President Al Gore have won plaudits by largely taking a hands-off approach on sensitive issues like sales taxes on Web-based transactions and censorship on the Net.

In backing the freeze on Net taxes, the president is almost certain to draw fire from the nation's governors, who fear losing millions of dollars in tax revenues from sales conducted over the Internet.

Online vendors fear that imposing taxes on the Web will crush the industry in its infancy.

"Their concern is really one of compliance," said Robert Wood, a partner at accounting firm Coopers & Lybrand who specializes in local and state tax issues. "Keeping track of 50 different sales taxes is a costly endeavor."

However, there is little new in the issue for those who have been watching state officials duke it out with the mail order catalogue companies. The courts have decided that the mail order companies are not required to collect state taxes unless they have a "substantial physical presence" in that state, and state officials have been lobbying Congress to take action ever since.

The flip side of the issue, of course, are the mom and pop retail shops that collect local and state taxes for the government. If sales over the Internet grow large enough to threaten local retailers, Wood said pressure on lawmakers will increase to bring Internet vendors into the tax collecting loop.

"Frankly, they are the voters and they will put up a strong effort," Wood said. "Congress is going to have to face it at some point."

More than 3,500 portfolio managers gathered at the firm's tech conference this week at San Francisco's Ritz-Carlton Hotel to hear scores of presentations by executives from mostly public corporations.

After his appearance at the conference, the president and Mrs. Clinton plan to take their daughter, Chelsea, to Utah to celebrate her 18th birthday with a ski trip.

By Brenon Daly & Binti T. Harvey
©1998, L.L.C