E-Commerce Commission Report Addresses the Growing 'Digital Divide'

Arlington, VA - April 20, 2000 - In a formal recommendation, the Advisory Commission on Electronic Commerce concluded that Congress should reduce communications taxes, clarify federal welfare guidelines, as well as encourage states and localities to partner with companies to help gap the "Digital Divide." The term refers to the disparity between individuals with and those without access to a computer and the Internet. According to a study by the U.S. Department of Commerce, urban households earning incomes in excess of $75,000 are over twenty times more likely to have home Internet access than rural households at the lowest income levels.

"Many of the recommendations adopted by the majority will result in reductions to taxes paid by consumers," said Commission member John Sidgmore, vice chairman, MCI WorldCom, in his letter included in the Commission's Report to Congress. "Two are especially noteworthy: the recommendation to permanently repeal taxes on Internet access and the recommendation to repeal the Federal excise tax. These reforms will promote increased access to essential technology and help bridge the Digital Divide."

In an effort to reverse a 102-year old tax, the Commission's Report encourages Congress to eliminate the three percent Federal excise tax on communications services, the third largest such tax behind those on alcohol and tobacco. Originally established in 1898 to assist with financing the Spanish-American War, the tax continued for the same purpose for World War I. The tax is typically applied to local and long-distance telephone services, including the use of phone lines to access the Internet.

"The Advisory Commission on Electronic Commerce was absolutely correct to identify this tax as a contributor to the digital divide, and as ready for repeal," said Commission member C. Michael Armstrong, AT&T chairman and CEO. "Repealing the excise tax would produce a long overdue tax break for American consumers. Corporations don't pay the tax, consumers do. AT&T and other telecommunications companies are required to collect it for the government. So while repeal won't help AT&T's bottom line, it will help every consumer who uses a telephone. Those consumers, in turn, would see their bills drop by 3 percent overnight."

"It is imperative that all citizens have the opportunity to participate in the Internet economy," said Commission Chairman, Virginia Governor James S. Gilmore, III. "Reducing the expense of Internet access, one of the contributing factors to the Digital Divide, is a key component of the Commission's Report to Congress."

Governor Gilmore added, "America's policy should be to remove taxes from the Internet and make the home computer as common as the telephone and television for all Americans."

The Commission recommended that Congress permit states to spend surplus funds from the Temporary Assistance and Needy Families program to provide computer, Internet access, and training to needy families. The Commission also recommended that incentives such as Federal and state tax credits and Federal matching funds be considered as incentives for private technology companies to partner with localities to make computers and the Internet more widely accessible. Those recommendations were proposed by Governor Gilmore.

The Commission's Report, including both recommendations that received two-thirds or more of the Commissioners' support as well as majority policy proposals, was submitted to Congress April 12. At its final meeting last month, the Commission voted to include key issues in its Report to Congress, including recommendations on:

• The need to bridge the "Digital Divide";
• Protecting consumer privacy on the Internet; and
• Making permanent a standstill on international tariffs on electronic commerce.

The report also details majority policy positions in key areas, including:

• Repealing of the Federal three-percent tax on telephone services;
• Simplifying state sales and use tax systems;
• Prohibiting states or localities from taxing Internet access charges;
• Extending the current Internet tax moratorium; and
• Clarifying nexus standards.

For more information about the Commission, its meetings, or to view its Congressional report, the public may visit the Commission's Web site at http://www.ecommercecommission.org.

About the Advisory Commission on Electronic Commerce

Appointed by Congress in October 1998 as part of the Internet Tax Freedom Act, the 19-member Commission has been tasked with studying the impact of federal, state, local, and international taxation and tariffs on transactions using the Internet and Internet Access. The Commission's recommendations are due to Congress no later than April 21, 2000.