BY PAUL BARTON
Enquirer Washington Bureau
WASHINGTON -- Municipal officials warned Tuesday that commerce over the Internet poses an increasingly dangerous threat to the financial health of America's cities.
The warning at a press conference by the National League of Cities (NLC) came as Congress continues to wrestle with Internet policy and how electronic transactions should be taxed. The issue is getting increasing discussion in the Tristate as well, with Ohio and Kentucky officials expressing many of the same concerns as their counterparts around the country.
The National Governors' Association, chaired by Gov. George Voinovich of Ohio, has joined the NLC in voicing concern about the potential of Internet commerce to siphon off state and local tax revenues as more and more business is done through a means not subject to sales taxes.
But Rep. Steve Chabot, R-Cincinnati, was one of the leaders on a recently passed House bill that would provide for a three-year moratorium on a variety of Internet taxes that state and local governments could impose. "Too many tax-and-spend politicians view the Internet as a cash cow," Mr. Chabot said.
But "City leaders are balancing scarce resources alongside a daunting list of priorities and needs, and the last thing we need is someone in Washington pulling the plug on our businesses and our tax base by creating a special tax haven -- at our expense -- that no one needs," said Brian O'Neill, a city councilman from Philadelphia and president of the NLC.
Ohio officials said they have no way of knowing yet the amount of tax revenues they are losing to Internet sales. "It is definitely a growing market. Right now we don't have a number on that," said Clare Long, deputy tax commissioner in Ohio.
Kentucky officials issued similar comments. "There is some concern about that. Unfortunately, the (state) tax laws in place are quite old and have not anticipated anything like (business) over the Internet," said Charlotte Quarles, tax consultant for the Kentucky Revenue Cabinet.
The overwhelming majority of the nation's cities, including those in Ohio and Kentucky, do not have the authority to levy their own sales taxes, but look upon the redistribution of sales taxes collected by states as an important source of revenues.
The bill that passed the House last month provides for a special commission to examine future Internet tax policy.
City officials say the issue is made even more critical because the main revenue source for most municipal governments -- property taxes -- is not keeping pace with growth in Gross Domestic Product (GDP).
City revenues have grown 46 percent since 1988 while GDP, the sum of all goods and services produced within U.S. borders, has increased 65 percent.
"Our cities are suffering under a tax structure designed for a vastly different era," Mr. O'Neill said.
But consumer groups say Congress is right to send a signal to state and local governments to keep from loading up the Internet with taxes. "It is one of the few opportunities we have had in recent years to stop a tax before it goes into place," said Pete Sepp of the National Taxpayers Union.
At some point, he said, an appropriate sales tax system for Internet transactions might be imposed, but the issue needs study first, he said.
Mr. Sepp said his organization is especially riled by the efforts of some state and local governments to impose taxes on Internet access and use itself. "That was going way too far," he said.
