Friday, November 12, 1999

Internet tax ban disputed

Public officials worry about loss of revenue

The Cincinnati Enquirer

        To pay off the new Bengals stadium and new Reds ballpark, Hamilton County's half-penny stadium sales tax will have to generate more than $1 billion over the coming years.

        The question is, will a new proposal to ban taxation of commerce on the Internet hurt the tax's ability to do that?

        Ohio Reps. John Boehner and John Kasich on Wednesday proposed just such a ban, saying the Internet should remain free of taxation and regulation.

        But Hamilton County Commissioner John Dowlin worries such a ban could hurt the county's sales tax collections, which not only fund the stadium projects but also provide the county's biggest source of revenue for its general fund.

        “When somebody starts messing with our largest source of income, that becomes a worry,” Mr. Dowlin said. “If John Boehner has his way, to me that's another unfunded mandate.”

        At the national level, organizations representing counties, cities and governors fear a ban like the one the two Republican congressmen propose could cut into revenues that pay for basic services.

        Experts disagree over whether such a ban is even a good idea.

        Bob Wientzen, president and CEO of the Direct Marketing Association, argues it is. His group agrees with Mr. Boehner that the government should leave the Internet alone and allow it to thrive.

        “We're seeing a tremendous expansion of our economy, driven by e-commerce and the digital economy,” Mr. Wientzen said. “Local jurisdictions will lose little, if any, of the revenue because the expansion is offsetting the loss.”

        But Paul Brazina, executive director of the Electronic Commerce Institute at La Salle University in Philadelphia, argues that a ban on taxation would be bad for e-commerce businesses.

        “It's very much in my mind a short-term fix,” he said.

        If the whole electronic commerce industry is built on a foundation of lower prices because of the tax ban, he said, the industry could collapse if taxes were introduced later.

        “The Internet should base its marketing model on the availability of product and

        prompt service to customers,” he said.

        Mr. Wientzen and other experts acknowledge it's difficult — if not impossible — to predict what the impact of such a tax policy could be to governments 10, 15 or 20 years from now.

        And that's what local stadium critic Tim Mara is worried about. Mr. Mara, who led the charge against the stadium sales tax back in 1996, said he's worried for the long term.

        “The mere prospect of declining sales tax revenues could increase the cost of the bonds that the county has yet to issue for the Reds' stadium and thus further increase the cost to taxpayers,” he said.

        But Hamilton County Commissioner Bob Bedinghaus doubts it.

        While an Internet commerce tax ban could hurt sales tax collections, he argues there always will be traditional retailing.

        The county's most recent sales tax collections show the stadium sales tax is predicted to grow by at least 7.5 percent over 1998 collections.

        The county estimates the half-penny stadium portion of the tax will generate $59.7 million this year, with 30 percent going toward a property tax rollback and the rest going to the stadium projects.

        “The impact of Internet sales perhaps could cut into that revenue stream,” Mr. Bedinghaus said. “But Kenwood Towne Centre ain't going away. People still buy cars, and I can't imagine people will buy refrigerators over the Internet.”


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