Schwartz leads city league against Net bill

PHILADELPHIA -- The information superhighway may be the road to the future, but if Congress limits the ability of cities and states to tax Internet commerce and online services, local governments fear they could be left behind.

Leaders of the National League of Cities announced their opposition to the proposed Internet Tax Freedom Act on Wednesday, blasting the bill as a "ticking time bomb" that would blow huge holes in budgets and force higher tax bills.

The legislation would exempt such companies as America Online and telecommunications giants like AT&T from paying franchise taxes and a percentage of their gross revenue generated on the Web. Mark Schwartz, an Oklahoma City councilman and president of the league, panned the Internet bill. He said that as America's economic base transforms into a service and information industry, local taxes should be allowed to follow the revenue. "We must look ahead and find ways to resolve these issues in a manner that sustains the growth of economic activity and assures the integrity of state and local revenue systems with fair and equitable practices," Schwartz said. Alex Briseno, city manager of San Antonio, agreed. "At a time when cities all over the country, and especially San Antonio, are struggling as the federal government passes down more (mandates), it doesn't make sense to limit potential revenue strains," he said. Many of the nation's governors also oppose federal restrictions on the ability of cities and states to tax Internet commerce. Among the biggest concerns facing cities and states are potential restrictions on charging sales taxes on goods bought through the Internet. Critics say such restrictions would give companies that sell goods through the Internet an unfair tax advantage over local shops and businesses. Frank Strul, executive director of the Texas Municipal League, said legislation now before Congress is likely to be watered down. "I think the tide is turning. It's not just the cities that are against this. Every state is opposing it," Strul said. "Originally, little was known about this bill." To bolster its case, the league released a 61-page report exploring how changes in the world economy are making state and local tax systems obsolete. "They're trying to create preferences tax shelters for their businesses," said Randy Arndt, a spokesman for the league. He said that if the bill becomes law, cities will have trouble paying for such basic services as police officers, firefighters and streets without raising taxes.

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