House Panel Okays Internet Tax Moratorium

A House Judiciary subcommittee approved a bill to permanently extend the existing moratorium on new and discriminatory Internet taxes. The measure now goes to the full Judiciary Committee for a vote.

The current temporary moratorium on Internet taxes — including taxes on Internet access, multiple-state taxation of a single item bought online, and discriminatory taxes that treat Internet purchases differently than other types of sales — is set to expire in November.

In the Senate, Ron Wyden (D-Ore.) and Conrad Burns (R-Mont.) have filed bills (H.R. 49 and S. 51) to keep the Internet tax free. The two sponsored the original three-year moratorium in 1998. It was extended for another two years in 2001 on legislation also sponsored by Wyden and Cox.

Last week, the Bush Administration signaled its support of the measure when Treasury Secretary John Snow and Commerce Secretary Don Evans sent a letter to Congress urging lawmakers to extend the existing moratorium.

Businesses and organizations throwing their weight behind the legislation include E-Bay!, the Direct Marketing Association, Federated Department Stores, Software and Information Industry Association, U.S. Internet Industry Association, Software Finance and Tax Executives Council, Information Technology Association of America, and the American Electronics Association.

Commercial and Administrative Law Subcommittee Chairman Chris Cannon (R.-Utah) said in the current economic climate, Internet taxes would be a blow to e-commerce, which constitutes approximately one percent of U.S. retail sales.

If a moratorium, permanent or otherwise, is passed by Congress, it would not, in all probability, apply to the growing movement to enforce sales taxes on Internet sales.

Currently, sales and use taxes are owed on all online transactions, but states are prohibited from requiring remote sellers to collect and remit those levies. A 1992 U.S. Supreme Court decision said states can only require sellers that have a physical presence or "nexus" in the same state as the consumer to collect so-called use taxes.

The court ruled that the current patchwork of roughly 7,500 taxing jurisdictions across the country is too complex and burdensome for online retailers to charge and collect sales taxes. In order to collect the taxes, the court ruled, states would need to first simplify the existing system.

In November, representatives from 32 states approved model legislation designed to create a system to tax Web sales. Spearheaded by the National Governors Association (NGA), the Streamlined Sales Tax Project (SSTP) would require participating states to have only one tax rate for personal property or services effective by the end of 2005. Included in those services would be online sales.

The coalition of states voted to require participating state and local governments to have only one statewide tax rate by 2006 for each type of product taxed.

The NGA launched the STTP in 2000 with the long-term goal of presenting Congress and the courts with a system that would allow the states to collect sales taxes on online sales and catalogue purchases.

Adapted from internetnews.com.