Congress Wraps Up First Session.

• Author: DOTSON, BETSY

As the first session of the 106th Congress comes to a close, GFOA members can reflect on a period that saw many public finance issues come to the fore, but left most still unresolved. Getting off to a slower start than usual, the session finished with a flurry of activity and a last-minute budget agreement designed to continue funding necessary programs while setting the stage for the upcoming election year. A review of those issues on GFOA's legislative agenda, as outlined in the June 1999 Government Finance Review, tallies up the results of the first session.

Revenue Issues

Taxation of Remote Sales. The primary legislative and fiscal issue facing state and local governments is the effect that surging sales of merchandise through the Internet and mail-order catalogs will have on tax revenues and services. The Advisory Commission on Electronic Commerce (ACEC) finally got underway in June 1999. The ACEC is the federal commission created by the Internet Tax Freedom Act of 1998 (P.L. 105-277) to study the taxation of electronic commerce during the three-year moratorium on the imposition of new sales and use taxes imposed by the legislation. It has held three meetings and is scheduled to hold its final meeting in March 2000, prior to issuance of its report and recommendations regarding remote commerce, which must be submitted to Congress by April 2000.

Although the purpose of establishing the commission was to provide a "timeout" for thoughtful examination of the issues surrounding state and local taxation of electronic commerce transactions, some members of Congress have sought to short-circuit the process and have introduced preemptive legislation. In the Senate, legislation was introduced by Senator Robert Smith (R-NH) that would impose a permanent moratorium on the collection of state and local sales and use taxes on Internet transactions (S. 328). Senator John McCain (R-AZ) declared that, if elected President, he also would impose such a moratorium, and he moved quickly to introduce his own permanent moratorium bill (S. 1611). Fears that this legislation would emerge as a provision in an appropriations bill prompted GFOA to contact all Senators to urge them to oppose such an action, and none was taken. Legislation taking a different approach was introduced by Senator Ernest Hollings (D-SC). Under this bill (S. 1433), a 5 percent federal retail excise tax on all remote sales would be imposed and the funds would be deposited into a trust fund. The fund would be distributed to states to be used to provide assistance for teachers' salaries.

In the House, Representative John Kasich (R-OH) introduced a permanent extension of the Internet moratorium near the end of the session. Like the Senate bills, the Internet Tax Elimination Act (H.R. 3252) would not only bar the imposition of new state and local sales and use taxes on Internet transactions, but could bar the collection of existing taxes. Although none of these bills was acted on during the first session, the stage is clearly set for action in 2000, particularly once the recommendations of the ACEC are received.

Finally, a "sense of the Congress" resolution was introduced in each house (S. Con. Res. 58 and H. Con. Res. 190) that directs the Administration to instruct the U.S. representatives to the World Trade Organization and other multilateral groups to support a moratorium on international tariffs and on special...