STATEMENT

OF

JOHN L. BUCKSBAUM,

CHIEF EXECUTIVE OFFICER

OF

GENERAL GROWTH PROPERTIES, INC.

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ON BEHALF OF

THE INTERNATIONAL COUNCIL OF

SHOPPING CENTERS

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ON THE

TAXATION OF

ELECTRONIC COMMERCE

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TO THE

STREAMLINED SALES TAX PROJECT

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SEPTEMBER 29, 2000

SUBMITTED BY:

INTERNATIONAL COUNCIL OF SHOPPING CENTERS

1033 N. FAIRFAX STREET, SUITE 404

ALEXANDRIA, VA 22314

(703) 549-7404

Good morning. My name is John Bucksbaum, and I am Chief Executive Officer of General Growth Properties, Inc., the second largest self-administered regional mall real estate investment trust (REIT) in the United States. General Growth currently owns, develops, and operates regional malls in 37 states. I am here on behalf of the International Council of Shopping Centers, of which I am a member of the Board of Trustees.

ICSC is the global trade association of the shopping center industry. Its 40,000 members in the United States, Canada and more than 70 other countries around the world include shopping center owners, developers, managers, investors, lenders, retailers and other professionals. The shopping center industry contributes significantly to the U.S. economy. In 1999, shopping centers in the U.S. generated over $1.2 trillion in retail sales and over $47 billion in state sales tax revenue, and employed over 11 million people.

I appreciate this opportunity you have given me to present my views, and those of ICSC, on sales and use taxes. I would first like to applaud the organizers and members of the Streamlined Sales Tax Project, including the National Governors Association, National Conference on State Legislatures, Federation of Tax Administrators, Multistate Tax Commission, and the various participating states. We believe that simplification and unification of our nation's overly complex and burdensome state sales and use tax system is an important step in getting legislation enacted that will level the playing field for all retailers. We support your efforts in developing a simplification proposal – one that hopefully Congress will accept as part of any overall package that would allow states to collect sales and use taxes on remote electronic sales.

My testimony today does not specifically address the various components or details of creating a simplified sales and use tax system. Instead, it addresses the need for Congress to enact legislation that would permit those states that simplify their sales and use tax systems to require out-of-state retailers to collect such taxes on their behalf.

Simply stated, we believe that all goods, regardless if they are purchased over the Internet, via catalog or in traditional retail stores, should be subject to the same state and local tax collection requirements. One form of commerce should not receive preferential tax treatment over another. Unfortunately, existing tax law is structured to favor electronic commerce over sales made in local retail stores.

Contrary to popular belief, it is not the existing moratorium on Internet taxes that precludes states from requiring out-of-state retailers to collect sales and use taxes on their behalf. Instead, it is a 1992 Supreme Court case, Quill v. North Dakota, that held that remote merchants are not required to collect sales and use taxes for states in which they do not have a physical presence or "nexus". The moratorium – which expires in October 2001 – applies only to access charges and new, multiple and discriminatory taxes on electronic commerce.

We do not support the enactment or implementation of Internet access charges, or new, multiple or discriminatory taxes on electronic commerce. Instead, we believe that existing sales and use taxes should be collected uniformly on all types of retail sales. The taxes which states should be able to require remote sellers to collect are not new taxes. Instead, they are existing use taxes which buyers are currently obligated to remit to their state and local governments. However, as a practical matter, most individuals are either unaware of their tax obligations, or simply do not bother to comply.

We support electronic commerce and believe it should be fostered. In fact, many traditional brick-and-mortar retailers are incorporating Internet commerce into their businesses in order to obtain new customers and better serve existing ones. However, as a matter of fairness and sound tax policy, Internet-based retailers should not receive a competitive advantage over traditional brick-and-mortar merchants simply because electronic commerce is a new and growing form of transacting business.

The inequitable situation that traditional retailers find themselves in is very clear to most Americans. In fact, a few months ago, ICSC commissioned Wirthlin Worldwide to survey Americans on this issue and found that two-thirds of them believe it is unfair to require brick-and-mortar retailers to collect state and local sales tax without requiring Internet-based retailers to do the same. In an Illinois statewide poll conducted by Market Shares Corporation released this week, over three-quarters of all respondents agreed that it is unfair to local businesses that sales tax is not collected on Internet purchases.

The reality is, as more and more Americans go online to purchase goods, the competitive tax advantage that Internet-based retailers enjoy will negatively affect many local retailers, shopping centers (including my own) and their communities in the near future. Not only will traditional retailers sell fewer goods, but their employees will suffer from reduced working hours, wages or layoffs. In fact, 62% of those polled by Market Shares Corporation believe that some local business will be seriously harmed and jobs will be lost as more people shop on the Internet.

In addition, state and local governments could experience a decrease in sales tax revenues that provide essential public services such as education, police and fire protection, and road repairs. Governments that rely heavily on sales tax revenues to fund key programs could potentially face severe budget shortfalls. When Wirthlin Worldwide surveyed Americans about this scenario, they found that a majority (55%) believe that reduced sales tax revenues would cause state and local governments to either raise other taxes, such as property taxes, or cut state and local programs. 69% of the Illinois residents polled by Market Shares Corporation felt the same way.

If local property taxes were to be increased, it would only add to the competitive disadvantage that traditional retailers have compared to Internet-based merchants. Not only do traditional retailers have to collect sales taxes on purchases, but they would then be forced to make up for lower overall sales tax revenue in the form of higher property taxes. As we all know, higher operating costs, including property taxes, often result in higher prices to consumers.

Furthermore, if governments decide to increase sales tax rates to make up for lost revenues, lower-income individuals would be particularly vulnerable to paying a higher share of their income on sales taxes since they are less likely to own computers and purchase products on-line. The Wirthlin Worldwide survey found that Americans overwhelmingly agree (62%) that this situation would be unfair.

Our critics assert that electronic commerce is a new and growing industry and, therefore, should not be saddled with "old world" sales tax collection requirements. They say we should not kill the goose that lays the golden egg. Our response is that, while electronic commerce is a growing and important part of our economy, subjecting it to the same sales tax collection requirements that traditional merchants have been subject to for decades would not harm its growth or vitality. Electronic commerce will continue to flourish, regardless of whether or not sales and use taxes are imposed on it. In fact, only 35% of those Illinois residents surveyed by Market Shares Corporation believed that collecting sales tax on Internet purchases would slow the growth of the Internet or the U.S. economy.

These critics also claim that forcing Internet retailers to collect sales and use taxes for the thousands of state and local taxing jurisdictions across the country would be too burdensome on electronic commerce and cannot be done. We agree that all businesses, especially small businesses, should not be overburdened by sales tax collection requirements and that state and local governments should work to simplify their sales tax systems. However, relatively inexpensive software exists today that can assist electronic retailers in determining how much sales and use tax needs to be collected on their out-of-state sales.

Another argument made by our critics is that states and localities are flush with cash and do not need to tax electronic commerce. While it is true that most state and local governments are currently enjoying budget surpluses, there is no guarantee that this economic prosperity will last forever. In fact, some states, such as Kentucky and Tennessee, are currently experiencing budget difficulties.

It is important to reiterate that the shopping center industry does not oppose the actual substance of the current moratorium – its ban on Internet access charges and new, multiple and discriminatory taxes on electronic commerce. However, we strongly believe that the longer the moratorium is extended, the more difficult it will be for Congress to level the playing field for all retailers with regard to sales and use tax collection.

That is why we support legislation that, in addition to providing for a short-term extension of the moratorium, would give those states that simplify their sales and use tax systems the authority to require remote sellers to collect and remit use taxes. Your group's development of a simplified and unified state sales and use system is a very important part of getting such legislation enacted into law.

Once again, I would like to thank the Streamlined Sales Tax Project for all of its work and for allowing me to express our views on this very important matter. I would be glad to answer any questions you may have.