III. Encouraging Telecommunications Technology

Economic growth in Michigan will depend, in part, on the continued evolution of advanced telecommunications and technology. Technological innovation also will provide citizens enormous power and convenience. There is broad agreement that a competitive market is the best means of increasing the availability and affordability of new products and services. That goal, unfortunately, has been thwarted by continued federal and state regulation that has actually secured the market position of reigning monopolies. And the market uncertainty created by unending disputes over regulatory minutiae inhibits investment by potential competitors.

13. Repeal the Michigan Telecommunications Act.

The Michigan Telecommunications Act has hindered market development, thereby depriving consumers of the lower costs and higher quality services that competition typically yields. An analysis by BBK Ltd.'s Anderson Economic Group concluded that Michigan's telecommunications law "increases government power, and reduces that of consumers. This increased regulation takes the form of mandated services, fixed prices, regulation of commercial speech, barriers to entry, and new government powers." The Legislature should repeal the price controls and service mandates in the MTA as well as curb the powers of the Public Service Commission to regulate telecommunications.

14. Prohibit government entry into telecommunications service markets.

Several municipalities in Michigan have launched cable and high-speed Internet services in direct competition with privately owned firms. But government should not be allowed to exploit its tax and regulatory advantages to undermine the private sector. Lawmakers should enact legislation that expressly prohibits state and local government from owning or operating any telecommunications service.

15. End discriminatory tax treatment of investment in telecommunications infrastructure.

Under current law, telecommunications property is taxed based on intangible assets such as the income it generates. Most other personal property in Michigan is taxed based on the depreciated value of the tangible asset. This discriminatory tax treatment is a major barrier to private investment in Michigan's telecommunications infrastructure and should be ended.

16. Resist the imposition of sales taxes on Internet transactions.

The U.S. Supreme Court has ruled that state and local governments cannot force out-of-state retailers to collect sales taxes because this would interfere with interstate commerce. States and localities may only require companies with a "substantial physical presence" or "nexus" in their state to collect sales taxes. That's as it should be.

But some public officials are eager to cash in on the growth of catalog and online sales. Gov. Engler, for example, strongly supports a National Governors' Association (NGA) proposal called the "Streamlined Sales Tax" that would effectively deputize a third-party entity to collect and distribute taxes on out-of-state purchases. If enacted, the proposal would open the door to a national sales tax. The Michigan Legislature last year gave approval for Michigan to collaborate with other states in furthering the NGA plan.

But taxes are supposed to pay for services that governments provide, such as police protection. Out-of-state vendors with no physical presence in a state do not consume government services. Thus, it would be unfair to tax out-of-state retailers.

The NGA plan also raises privacy concerns. When a consumer pays sales tax at a local shop, no one asks her name, where she lives, or anything about her buying habits. Under the NGA plan, however, the third-party tax collector could easily collect such information.

Supporters of the NGA plan talk a lot about fairness and the need to "harmonize" states' sales taxes. But Michigan "loses" revenue all the time to states that tax less and tax better, and it gains revenue over states that tax more and in more harmful ways. That's healthy tax competition, and it's one of the reasons the states are called "laboratories of democracy."

Colorado Gov. Bill Owens, in a February 1, 2002 speech, made some revealing and instructive comments on the Internet tax issue that bear repeating to a Michigan audience:

When I go on Main Street to buy something at Wal-Mart in Aurora, Colo., I am using the city street. I am protected by the city police force. If there is a fire and I need the help of the fire department, they are there. As I am going to that Wal-Mart or while I am in that Wal-Mart, if I drink water from the water faucet, I am using municipal water. I am in fact receiving city services when I go to that Wal-Mart and make that purchase.

When I buy something over the Internet from Lands' End in Wisconsin, the only impact on any government in Colorado is the UPS truck that arrives at my door, bringing me that package. And UPS, I can assure you, more than pays its fair share in gas taxes for the use of that local or state road. There is no nexus between a service rendered and a service delivered for that Internet tax that some would want me to have to pay to Aurora and to Colorado.

Twenty states are now meeting regularly, setting up the system, so that if Congress ever allows us to tax the Internet, there are states all ready to go forward with the compact to make this happen. Well, let me just tell you-and I bet Colorado is not the only state that will do this-but it is my goal, if that day ever happens, to have Colorado be the Switzerland of Internet taxation. I want us to be a tax haven so that these companies move to Colorado.3

Some say the effort to impose sales taxes on all Internet transactions is a train rolling down the track. But it's a train that should be derailed.

For further information, please see www.mackinac.org/2773.