Mayors, Counties Sue Over Internet Tax Panel

The U.S. Conference of Mayors and the National Association of Counties are challenging Congress over the makeup of a panel to study the Internet tax situation. They say state and local officials do not have fair representation on the panel.

Tuesday, the two groups criticized the panel’s composition in a federal lawsuit. They fired off letters to Senate Majority Leader Trent Lott (R-MS) and Senate Minority Leader Thomas Daschle (D-SD), threatening immediate court action to block the first meeting of the Advisory Commission on Electronic Commerce set for June 21 by its chairman, Virginia Gov. Jim Gilmore.

“Unless the membership of the Commission is changed to provide an equal number of state and local government and business representatives (eight each), we intend to file a preliminary injunction to prevent the Commission from meeting,” their letters said. There was no immediate comment from either Lott or Daschle.

The two groups contend in their lawsuit, filed in U.S. District Court, Washington, that the 19-member panel, created with the adoption of the Internet Tax Freedom Act, is tilted in the industry’s favor because it has nine members from the communications industry and only seven representatives of state and local government groups. Federal officials hold the remaining three slots on the panel.

The Internet Tax Freedom Act bars state and local governments from imposing any new taxes on Internet transactions while the panel determines whether or not those transactions should be taxed and at what rate. The panel files its recommendations with Congress.

The imbalance enables the panel to block any attempts to obtain tax parity between Internet, mail order and retail sales, the two groups allege in their suit. Thus far, the Gilmore panel has not filed a response to the suit and no trial date has been set.

The Direct Marketing Association, which is closely monitoring the dispute, is satisfied with the Commission’s makeup according to Richard A. Barton, its senior vice president for Congressional matters.

“As far as we’re concerned, it’s between the courts and Congress. We think the Commission ought to start meeting as soon as possible to deal with and develop a set of recommendations dealing with what the direct marketing industry considers to be the life and death issues of commerce on the Internet,” he said.