Why is Taxation an Issue?
Governments need revenue. Whether to tax an activity is a political choice. Some argue that the Net and Web should be free of tax. [We'll look more closely at this claim later.] To this end a California state legislator, Ted Lempert (D-San Carlos), introduced in the legislature the California Internet Tax Freedom Bill. In the fall of 1997 Lempert's bill was passed in the Assembly by a vote of 76-1, but was then stalled by opposition from cities. They feared that, as written, it would threaten some forms of taxation on which they had long relied. For example, they cited cable TV franchise fees. The point is that even city officials prepared to accept keeping the Internet free of tax wanted to protect themselves against revenue loss. According to the San Jose Mercury, Dwight Stenbakken, legislative director of the League of California Cities, said that the bill cut into cities' existing tax authority: its effect was to exempt Internet use and services from taxes and fees already being paid. [San Jose Mercury, 24 May 1998.]
The issue was addressed by creating a panel of three city officials and three representatives of computer companies to find legislative language that would meet both groups' concerns.