Another Internet Taxation Bill In Congress . . .

by Mike Godfrey, Tax-News.com, New York

12 October 2001

With just one week left until the existing US moratorium on internet taxes expires, yet another bill hit the Senate floor on Wednesday when four senators introduced a measure that would extend the moratorium for five years.

S 1525 is sponsored by Senators George Allen (R - Va.), Barbara Boxer (D - Calif.), Conrad Burns (R - Mont.) and Judd Gregg (R - N.H.). Senator Boxer in a statement said that the legislation will help high-tech businesses struggling in a soured economy: "We must do all we can to make sure that our tech sector not only survives, but thrives, and I believe this bill is a necessary and positive step in the right direction," she said.

However, the new bill flies in the face of a consensus which had been building in Congress to extend the moratorium only for a short period, to allow in depth discussion of the whole sales tax issue, something which has now become impossible before the moratorium expires.

Thus, the House Judiciary Committee approved a 2-year extension of the moratorium on Wednesday although it had been expected to go for 5 years. Unfortunately (for those who want to resolve the sales tax imbroglio) an amendment to include language tying the moratorium to simplification of sales tax failed to pass.

The position of the 'simplifiers' is that the persistence of what are said to be 7,000 different sales tax regimes is ludicrous as trade becomes ever less a 1-state affair. The Supreme Court has ruled that sales tax cannot be charged on cross-border remote sales unless the seller has a significant physical presence - or "nexus" - in the buyer's state, leading to a plethora of 'use' taxes in which tax is supposedly collected from the recipient of goods or services. Trading on the internet therefore is almost always is out of reach of sales taxes.

A growing group of states has signed up to the SSTP (Simplified Sales Tax Programme) which would instal a unified sales tax regime, allowing Congress to reverse the Supreme Court ban on remote sales taxes, which could therefore apply on the internet as much as away from it.

By and large, Democrats are 'simplifiers' and want sales taxes to apply on the internet, while Republicans tend to believe that the internet should be free of taxes for a good while yet, and for that reason don't particularly want to see the confusion resolved. It's more complicated than that, of course, so expect a good few more stories on internet taxation in the next week or two!

Recommended