The Honorable Byron L. Dorgan (D-ND)
United States Senate
713 Hart Office Building
Washington, DC 20510

The Honorable Ron Wyden (D-OR)
United States Senate
516 Hart Office Building
Washington, DC 20510

Dear Senators Dorgan and Wyden:

The Association for Financial Professionals (AFP) wishes to share its views with you on legislation that will determine the future taxation of Internet commerce and remote sales.  We generally support the concepts in the legislation that you have introduced and commend you for taking leadership roles on this issue.

AFP represents almost 15,000 treasury and finance professionals employed by over 5,000 corporations and other organizations.  Organizations represented by our members are drawn generally from both the Fortune 1000 and middle-market companies in a wide variety of industries, including manufacturing, retail and technology.  These organizations are responsible for paying and collecting substantial amounts of tax on sales through the Internet and more traditional channels.  Our members have an active interest and sizable stake in the outcome of the debate regarding the taxation of Internet commerce and remote sales.

AFP appreciates the important role that electronic commerce plays in developing new market opportunities, increasing productivity and contributing to the overall expansion of the economy. We strongly support passage of laws or regulations that encourage innovation and efficiency. However, we also support the principle of tax equity, and believe that it would be inequitable to exempt electronic commerce from taxes levied on sales via other channels.

We recognize that sales tax is a critical source of revenue for state and local governments. However, requiring businesses that sell in multiple states to comply with the existing complex and inconsistent sales tax structure places an unfair and excessive burden on these businesses. Reform of this structure is long overdue.

AFP recommends that Congress adopt legislation that will:

1. Extend the current moratorium on new, multiple and discriminatory taxes on Internet sales for an additional four years through October 21, 2005.
2. Encourage state and local governments to simplify and unify their complex sales tax structures.
3. Allow states that have adopted the simplified, uniform sales tax structure to impose sales taxes on purchases by their residents, regardless of the location of the seller or whether the purchase was made at a store, by telephone, by mail, or by the Internet.
4. Ensure that compliance with the simplified sales tax structure does not increase the burden placed on merchants.

AFP's position on the taxation of Internet and other remote sales is based on the following principles:

Promotion of Electronic Commerce
Electronic commerce plays an increasingly significant and valuable role in the U.S. economy.  The growth of electronic commerce has driven innovation that has led to new methods for marketing and distributing products and services, which in turn have contributed to increased productivity yielding economic growth sustained by modest inflation.  Electronic commerce will continue to play a crucial role in the future of the U.S. economy if not subjected to discriminatory taxes and regulation.

Retention of Sales Tax as a Revenue Source
Sales tax is a crucial source of revenue to state and local governments, enabling their provision of vital public services.  A June 2000 study by the U.S. General Accounting Office reported that 33 percent of state tax revenue and 11 percent of local tax revenue is derived from sales tax.  This same report estimated sales tax revenue lost on Internet sales in 2000 to be as high as $3.8 billion, on a sales tax base of $203 billion for all of 1999.  If projections for the future growth of Internet commerce are realized, the damage to state and local tax revenue will quickly increase.

Equity in the Sales Tax Structure
To allow all merchants to compete fairly, similar sales transactions should be treated equally, regardless of the manner in which the sales are transacted.  It is inequitable to exempt electronic commerce from the collection of sales taxes while requiring traditional brick-and-mortar retailers to collect them. Online merchants and catalog retailers that are not required to collect sales taxes can offer the same products at a lower total cost to consumers.  Brick-and-mortar retailers are likely to see property taxes increase due to the loss of sales tax revenue to Internet sales, while suffering a decline in sales.  Exempting online and catalog merchants from sales tax unfairly favors these delivery channels over others and will likely lead to the demise of many traditional retailers whose profit margins are already notoriously thin.

Reduced Tax Compliance Burden for Merchants
Businesses selling on a nationwide scale are faced with the unfair burden of complying with the varied sales tax requirements in as many as 7,500 different taxing jurisdictions. Collecting, remitting and reporting sales taxes in each of these jurisdictions creates a high systemic cost that must be borne by those collecting the taxes.  Neither brick-and-mortar companies doing business nationally today nor Internet merchants that may be required to collect sales taxes in the future should be forced to absorb these collection costs.  The current sales tax structure, whether applied to purchases in stores, by telephone, by mail or by the Internet, must be reformed, and tax collection on remote sales should not proceed until compliance requirements are drastically simplified.

We are encouraged by the efforts of groups that have developed a framework to simplify and streamline sales taxes nationwide. The work of these groups presents a comprehensive guide to addressing the issues that must be resolved before allowing states and localities to require the collection of sales taxes by out-of-state merchants.  However, the legislation that Congress adopts should require a minimum acceptable standard for simplification to ensure that the guidelines promulgated by these groups, as adopted separately by each state, do not continue to impose an unfair burden on merchants.

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We generally support the concepts contained in the legislation you have introduced. We congratulate you for taking the initiative on this important issue.  Your bills are based on principles that are important to AFP members.  It is critical to pass legislation that encompasses these principles well before the October 21, 2001, expiration of the current moratorium.  This is necessary to avoid a period in which neither state and local governments, nor businesses, can make informed decisions regarding electronic commerce.

Frank Curran of the AFP staff is available for discussion of this issue.  Mr. Curran can be reached at (301) 961-8827.

Sincerely,