The Commission held its fourth and final meeting in Dallas on March 20 and 21, and a majority of commissioners voted to send Congress a report that calls for abolishing the 3 percent federal excise tax on phone bills, extending the present moratorium on state and local taxes on the Internet, permanently banning taxes on Internet access, and abolishing taxes on digitally transferred goods such as CD’s, videos, and computer software.

The Clinton administration and pro-tax Governor Leavitt of Utah had fought hard to get the commission to reverse sixty years of Supreme Court rulings on the Commerce Clause, and endorse the idea that states and local governments should be able to force businesses in other states to collect their sales taxes.

At present, if a citizen of Utah buys a book from Amazon.com or a coat from L.L. Bean, neither business is required to collect Utah’s sales tax for the government of Utah. The Commerce Clause forbids one state or local government from imposing its taxes on a business in another state unless that business has a substantial presence in both states. Utah’s Leavitt and those other governors who wish to raise taxes rather than restrain government spending have convinced themselves that there is a pot of gold that can be painlessly collected from their citizens by having Internet and catalogue businesses in other states do their tax hiking for them.

In fact, most Internet sales-the billions and billions of electronic commerce that one reads about-is business-to-business commerce that does not pay sales taxes. There is very little “lost revenue” from electronic commerce. One study puts the number at 185 million dollars in 1999 — less than one-third of 1 percent of total sales taxes collected.

When it became clear that the tax-the-Internet forces would lose in Dallas, Leavitt and his ally, pro-tax Governor Locke of Washington state, tried to argue that the commission could not report to congress because Congress had asked the commission to report “findings” that had a 2/3 supermajority consensus. But this effort was crushed when House Speaker Denny Hastert and Senator Trent Lott both sent the commissioners letters asking them to submit a majority report and not to let the three Clinton commissioners undermine the report by abstaining in an effort to avoid a 2/3 vote.

The Clinton administration had played the same trick in trying to undermine the Medicare Commission that last year reported the bipartisan Thomas-Breaux Medicare reform package, which would have increased competition and lowered costs. That commission filed its majority report, but was stopped from having a 2/3 vote by Clinton’s orders to his commissioners to oppose Thomas-Breaux. Clinton wanted the issue for political gain.

The current commission suggested a five-year moratorium on new taxes on the Internet, and called on Congress to pass legislation to clarify nexus-the legal rules on when a business has a “substantial presence” in a state and must collect sales taxes. This will stop the drive to attach sales taxes onto the internet. Pro-tax politicians had hoped to panic state and local politicians into lobbying for Congress to give them the power to tax across borders. This is a replay of previous efforts to convince state and local politicians that catalogue businesses threaten their sales tax base. In fact only about 2 percent of sales in America are made through catalogues. And two-thirds of sales in America are not subject to sales taxes-i.e. food, medicine, services, home sales.

Five years from now, state politicians will find that their sales-tax revenues have continued to climb-through not as fast as they might wish. Downtown retailers will find that shoppers continue to like to spend money in stores-as they did in record numbers in this, the first Internet Christmas

The drive to panic state politicians and “bricks and mortar” retailers into throwing away the Commerce Clause of the Constitution, and letting Alabama tax collectors do to businesses in 49 states what Alabama juries already do to Detroit auto companies, has failed. Clinton, Leavitt and their pro-tax allies smell other people’s money, and they will try again; but they lost this round.