REV-7-5	November 16, 1999

Advisory Commission on Electronic Commerce

3401 North Fairfax Drive

Arlington, VA 22201-4498

Dear Commission Members:

The City of Chico is concerned about the impact of a decision to exempt Internet sales from taxation. Electronic commerce has the potential to affect a significant amount of point of sale revenues. Chico derives over 49% of its general fund revenues from sales tax. As one of the last unrestricted revenues available to local government, the loss of sales tax revenue would threaten our City's ability to provide necessary City services to its citizens.

Internet sales continue to increase dramatically each year. Erosion of the local sales tax base to the Internet without parity of taxation will have a pivotal impact on our City. Exempting Internet sales from taxation is unfair to local businesses, economically disadvantaged citizens that don't have Internet access, and local governments dependent upon sales tax for revenue.

Tax reform will undoubtedly be a key issue in the coming years as electronic commerce evolves. The establishment of tax policies related to electronic commerce should take into account the need for fairness and equity. These tax policies should maintain parity so as not to adversely affect the fiscal well-being of local government or threaten its ability to continue to provide required services and respond to safety and quality of life issues. Tax reform must be equitable and mindful of the impact on local government.

Respectfully submitted,

Marsha Martin

Finance Director

cc: CM/ACM