Internet Tax Ban Hits Congressional Fast Track

Legislation to permanently extend the existing temporary moratorium on Internet access taxes hit the fast track in Congress Wednesday with the House Judiciary Committee sending a bill to the floor and the Senate Commerce Committee holding a hearing on the issue and predicting a vote on the measure by next week.

The current 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.

On a voice vote, the House Judiciary approved the Internet Non-Discrimination Act (H.R. 49), a bill sponsored by Rep. Christopher Cox (R-Calif.), who, along with Sen. Ron Wyden (D. Ore.) sponsored the original three-year moratorium in 1998.

It was extended for another two years in 2001 on legislation sponsored by Wyden and Cox. Both are the primary authors of the legislation now before the House and the Senate.

“Today we are one step closer to permanently ensuring that Americans are free from new taxes on their e-mail and Internet access,” said Cox. “New taxes discriminating against Internet users would be unfair to our economy and our society. It is time to permanently ban them.”

Following the House Judiciary Committee mark up of the Cox bill, Commerce Secretary Donald Evans and Treasury Secretary John Snow, who earlier this year urged Congress to extend the moratorium, praised Wednesday’s House action.

“The Internet is an innovative force that opens vast potential economic and social benefits of e-commence and enables such applications as distance learning, telemedicine, e-business, e-government and precision farming,” the two said in a joint statement. “Government must not slow the rollout of Internet services by creating administrative barriers or imposing new access taxes. Nor should governmentstifle e-commerce through multiple or discriminatory taxes.”

In the Senate, the Commerce Committee heard testimony from Joseph Rip, vice chairman of America Online; Paul Misner, VP of Global Public Policy for; Mark Beshears, VP of state and local tax for Sprint; and Billy Hamilton, deputy comptroller of Texas.

AOL, Amazon and Sprint all supported making the moratorium permanent while Hamilton, who was also representing the Multi-State Tax Commission, said taxation of the Internet was a state issue and Congress should not pre-empt their right to tax.

“Members of our legislatures understand and value the unique qualities of the Internet as a means of commerce,” Hamilton said, “but they also understand that it should not be treated differently than other businesses operating in their states, many of whom pay state and local states.”

An estimated 62 million American households have Internet access and already pay taxes on the cable or phone lines that carry their Internet service.

Members of the Commerce Committee said additional taxes on Internet access wouild amount to double taxation and would further raise the cost barriers for the approximately 50 percent of Americans who are not wired.

“The moratorium on discriminatory and multiple Internet taxes has been in place for five years and has a well-known track record — there’s no reason not to make it permanent,” said Wyden. “In all this time there has not been a single case in which a state or locality has come forward with evidence showing damage caused by the inability to impose discriminatory or multiple taxes on the Internet.”

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.

“In past years, the debate over the moratorium has been mixed with several states’ efforts to broaden their authority to collect sales taxes from remote sellers,” Sen. John McCain (R.-Ariz.), chairman of the Senate Commerce Committee, said. “In fact, many people even today seem to think that the Internet tax moratorium…is a ban on sales taxes on e-commerce transactions. It is not.”

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 sales tax question is a matter of significant importance and I look forward to seeing if there is evidence that the states participating in the SSTP have advanced towards true sales tax simplification,” McCain, who promised a separate hearing on the issue later this year, said.

Adapted from

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