HomeMy WebLinkAboutItem 02 - Sales Tax Internet PurchasesITEM R Z�MM
MEMO TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: ROGER NELSON, CITY MANAGER
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MEETING DATE: JANUARY 4, 2000
SUBJECT: RESOLUTION SUPPORTING A REASONABLE APPLICATION
OF SALES TAX ON INTERNET PURCHASES
RECOMMENDATION:
The City Manager recommends that the City Council approve the resolution encouraging
the United States Congress to develop a reasonable application of sales tax on Internet
purchases.
BACKGROUND:
The U.S. Congress passed and President Clinton subsequently signed the Internet Tax
Freedom Act into law in October 1998. The placed a three-year moratorium on the
application of sales tax to Internet purchases. During the three-year moratorium a
national advisory commission is charged with studying the issue and making a
recommendation to Congress. Senator John McCain has stated that he will introduce a
bill in January of 2000 making the Internet Tax Freedom Act permanent.
During the National League of Cities conference in December 1999 the Internet Tax
Freedom Act was a focus of much discussion. The NLC is asking all local governments
to contact their representatives and make them aware of the impact a permanent sales
tax exemption could have on local governments and local businesses. In Grapevine's
case, if the projected 20% decrease were to occur, Grapevine would stand to lose $2.8
million, which is roughly 7¢ of property tax revenue. Because of our dependence on
sales tax and the regional nature of the mall, the impact would probably be much more
that the 20% projected by NLC.
If approved by Council, the attached resolution and draft letters would be sent to all of
Grapevine's elected representatives at the Federal and State level.
December 27, 1999 (2:14PM)
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
GRAPEVINE, TEXAS, SUPPORTING THE REASONABLE
APPLICATION OF SALES TAX ON APPLICABLE
PRODUCTS AND SERVICES PURCHASED THROUGH
ELECTRONIC COMMERCE, TO ENSURE EQUITABLE
TREATMENT OF RETAILERS PHYSICALLY LOCATED IN
GRAPEVINE AND PRESERVATION OF THE LOCAL TAX
BASE NEEDED TO DELIVER BASIC AND EXPECTED
GOVERNMENT SERVICES; AND PROVIDING AN
EFFECTIVE DATE
WHEREAS, state and local governments rely on sales tax revenues to pay for
public services related to public safety, education, infrastructure maintenance, social
programs and other quality of life services; and
WHEREAS, nationwide, sales tax comprises nearly half of the tax revenues
collected by states and distributed to local governments; and
WHEREAS, state and local governments have experienced difficulty in collecting
sales tax on purchases made from out-of-state businesses, known as remote sellers;
and
WHEREAS, the growth of the Internet has increased the ease with which
consumers can engage in remote sales; and
WHEREAS, between 1997 and 1998 retailers selling on the Internet tripled from
12% to 39%; and
WHEREAS, 93.5% of e-commerce transactions are expected to come from
traditional business and retail sources by 2002; and
WHEREAS, the U. S. Congress enacted the Internet Tax Freedom Act of 1998
which pre-empts state and local authority by establishing a three year moratorium on
the imposition of e-commerce related taxation, and created an Advisory Commission on
Electronic Commerce charged with making recommendations for future Congressional
action; and
WHEREAS, the Internet Tax Freedom Act discriminates against citizens without
Internet access because these individuals will continue to be obligated to pay sales tax
on purchases from local stores, while consumers with the means to afford the
necessary technology for making Internet purchases will not be required to pay sales
tax; and
WHEREAS, retailers engaging in e-commerce will experience an unfair
competitive advantage over local, "Main Street", or "bricks and mortar" businesses if the
Internet Tax Freedom Act is made permanent; and
WHEREAS, the National Governor's Association estimates that state and local
government revenues from sales tax could decrease by as much as 20% by 2003 if the
Internet Tax Freedom Act is made permanent; and
WHEREAS, the City of Grapevine is a member of the National League of Cities
(NLC), and the National League of Cities is launching a multi-year education and
advocacy effort to increase understanding of the electronic marketplace and develop
public policy recommendations that will help shape the debate at the end of the three-
year moratorium on taxing online transactions; and
WHEREAS, there are three key messages guiding this campaign:
(a) The opportunities offered by electronic commerce. At the same time, we
must protect local retailers from unfair competition and preserve tax bases
needed to deliver basic and expected government services.
(b) Charging sales tax for online purchases of traditional goods does not
represent NEW taxes. A book purchased off a shelf at Barnes & Noble and a
book purchased online through Amazon.com are and should be subject to the
same taxes. If a consumer buys two books at Amazon.com and no books at the
local Barnes & Noble, the government has lost expected revenue from the sales
tax.
(c) Convenience, not tax avoidance, is what lures consumers to online
purchasing. In fact, many don't know whether they pay any sales tax when they
buy online or under what circumstances they would pay local/state sales tax.
Therefore, it is safe to assume that charging sales tax for traditional purchases
will not stymie the growth of this new marketplace. Moreover, it is absolutely
clear that state and local taxes have in no way restricted the phenomenal growth
of the nation's leading e-commerce companies like Microsoft, Intel and others.
Federal legislation should not create a protected class of taxpayers at the
expense of Main Street and other taxpayers; and
WHEREAS, it is important that cities make their concerns known to our United
States senators and congressmen, state legislators, governor and lieutenant governor;
and
WHEREAS, local elected officials have a unique opportunity and duty to educate
citizens, business leaders and key stakeholders about the risk that the dramatic growth
of tax-free online shopping poses to local revenue bases; and
RES. NO. 2
WHEREAS, the Advisory Commission on Electronic Commerce will consider
proposals to address e-commerce related taxation issues, including one jointly
submitted by the National Governors' Association, Council of State Governments,
National Conference of State Legislators, National Association of Counties, U.S.
Conference of Mayors, National League of Cities, and International City/County
Manager's Association entitled "Streamlined Sales Tax System for the 21st Century".
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF GRAPEVINE, TEXAS:
Section 1. That all premises stated in the preamble to this resolution are
incorporated herein as if copied in their entirety.
Section 2. That the City of Grapevine does hereby support the reasonable
application of sales tax on applicable products and services purchased through
electronic commerce to ensure equitable treatment of retailers physically located in
Grapevine and preservation of the local tax base needed to deliver basic and expected
government services.
Section 3. That the City of Grapevine hereby opposes attempts by the United
States Congress to enact further legislation that might preempt the authority of state
and local governments.
Section 4. That the City of Grapevine will participate in educational and
advocacy efforts as outlined by the National League of Cities and will communicate with
national, state and local officials regarding this important issue.
Section 5. That this resolution shall become effective from and after the date
of its passage.
PASSED AND APPROVED BY THE CITY COUNCIL OF THE CITY OF
GRAPEVINE, TEXAS on this the 4th day of January, 2000.
•
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FTAI a a 0000
ATTEST:
January 5, 2000
Honorable Jane Nelson
State Senator
3700 Forum Drive
Flower Mound, Texas 78711
Dear Senator Nelson:
D R il-It F T
In 1997 the Mills Corporation opened the Grapevine Mills Mall. This $150,000,000 investment by the
Mills Corporation has brought roughly 5,000 jobs to Grapevine and generates in excess of $5,000,000 a
year in sales tax revenues for the City of Grapevine and $30,000,000 in sales tax revenues for the State of
Texas. Since the announcement of the mall's opening the City has been able to reduce its property tax
rate by 4.5¢ because of the increased sales tax revenues. Sales tax revenues have also allowed the City to
pass a $40,000,000 bond issue with roads, a senior center and a library in it without a tax increase. It has
allowed the City to increase its efforts in the areas of parks and recreation, library services, police and fire
protection and historic preservation without a tax increase. In a time of tough competition for employees
the City has been able to pay its employees a competitive wage that has allowed us to maintain our
service levels to the citizens of Grapevine while cutting property taxes every year.
However, the City's accomplishments and the improved quality of life for the citizens of Grapevine are
imperiled because of the possibility of the Internet Tax Freedom Act of 1998 becoming a permanent
fixture in the country's tax code. The National League of Cities estimates that the Internet Tax Freedom
Act of 1998 could result in a 20% decrease in sales tax revenues by the year 2003. To Grapevine, that
impact is $2,800,000 of lost revenues for the City. In order to balance our budget with this type of loss
the City will either have to cut services or raise the property tax rate by 7¢. For the State of Texas the loss
from Grapevine sales taxes alone represents $16,800,000 in reduced sales tax receipts.
Either way, the citizens and businesses in Grapevine will have to pay for an Internet sales tax exemption
that unfairly favors e -businesses over the bricks and mortar businesses found on Main Streets across the
country. The sales tax loss is only one component of the loss to communities. The bricks and mortar
businesses donate money and services and merchandise to local charities every year. They provide a city
with the ability to be a community. In the last year amazon. com hasn't put a single dollar into making
Grapevine a hometown for its customers, but the merchants along Main Street have participated in two
festivals, three parades, a Christmas tree lighting ceremony and donated thousands of dollars in
merchandise and services to worthy causes. Their community spirit helps make Grapevine a great place
to live.
Please join with Grapevine in encouraging Congress to develop a reasonable Internet plan that preserves
the integrity of sales tax receipts for cities and states.
Sincerely,
William D. Tate
Mayor
City of Grapevine
? Y y1
City Manager's Office • P.O. Box 95104 • Grapevine, Texas 76099 s 817-410-3104 • Fax 817-410-3002 • http://www.ci.grapevine.tx.us
January 5, 2000
Honorable Phil Gramm
United States Senate
370 Russell Senate Office Building
Washington, D.C. 20510
Dear Senator Gramm:
In 1997 the Mills Corporation opened the Grapevine Mills Mall. This $150,000,000 investment by the
Mills Corporation has brought roughly 5,000 jobs to Grapevine and generates in excess of $5,000,000 a
year in sales tax revenues for the City of Grapevine and $30,000,000 in sales tax revenues for the State of
Texas. Since the announcement of the mall's opening the City has been able to reduce its property tax
rate by 4.5¢ because of the increased sales tax revenues. Sales tax revenues have also allowed the City to
pass a $40,000,000 bond issue with roads, a senior center and a library in it without a tax increase. It has
allowed the City to increase its efforts in the areas of parks and recreation, library services, police and fire
protection and historic preservation without a tax increase. In a time of tough competition for employees
the City has been able to pay its employees a competitive wage that has allowed us to maintain our
service levels to the citizens of Grapevine while cutting property every year.
However, the City's accomplishments and the improved quality of life for the citizens of Grapevine are
imperiled because of the possibility of the Internet Tax Freedom Act of 1998 becoming a permanent
fixture in the country's tax code. The National League of Cities estimates that the Internet Tax Freedom
Act of 1998 could result in a 20% decrease in sales tax revenues by the year 2003. To Grapevine, that
impact is $2,800,000 of lost revenues. In order to balance our budget with this type of loss the City will
either have to cut services or raise the property tax rate by 7¢.
Either way, the citizens and businesses in Grapevine will have to pay for an Internet sales tax exemption
that unfairly favors e -businesses over the bricks and mortar businesses found on Main Streets across the
country. The sales tax loss is only one component of the loss to communities. The bricks and mortar
businesses donate money and services and merchandise to local charities every year. They provide a city
with the ability to be a community. In the last year amazon. com hasn't put a single dollar into making
Grapevine a hometown for its customers, but the merchants along Main Street have participated in two
festivals, three parades, a Christmas tree lighting ceremony and donated thousands of dollars in
merchandise and services to worthy causes. Their community spirit helps make Grapevine a great place
to live.
Please join with Grapevine and the 18,000 other cities represented by the National League of Cities in
developing a reasonable sales tax collection framework for the Internet that preserves the integrity of city
and state sales taxes.
Sincerely,
William D. Tate
Mayor
City of Grapevine
City Manager's Office • P.O. Box 95104 • Grapevine, Texas 76099 • 817-410-3104 • Fax 817410-3002 • http://www.ci.grapevine.tx.us