Congress Is Becoming Active Over Internet Tax Moratorium

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

08 October 2001

Senator Byron Dorgan (Dem.- N. Dakota) has proposed a 9-month extension to the Internet tax moratorium that is due to expire on October 21st, in the hope that it will spur lawmakers to reach an agreement on the ability of states to tax online purchases.

Earlier in the week, Senator Ron Wyden (Dem. - Oregon) had sponsored a bill including a 2-year extension, also to allow time for a compromise position to be reached.

While Dorgan's bill also includes a resolution saying states should be encouraged in their efforts to tax online sales, Wyden's bill does not, reflecting a position less closely aligned to that of the governors, who mostly want to be able to tax internet sales, fearing a rapid leaching away of tax revenues if no compromise is reached on permitting cross-border internet taxation. Under a 1992 Supreme Court decision, states cannot require out-of-state retailers such as catalog companies to collect sales taxes unless they have a physical presence in the state.

"As far as I'm concerned, I don't mind extending this moratorium forever," said Dorgan, "But it should be made permanent or should be made a long-term extension only when we agree, all of us, that we have another problem attendant to it: the problem of the collection and remission of taxes that support our school system."

The chances of reaching a compromise by the deadline of October 21st have now virtually disappeared, under the weight of post-Sept 11th legislation, which has naturally distracted Congressmen from other priorities.

What makes the situation in Congress very complex is the gradual emergence of a plan to reorganise and simplify sales taxes, which is seen as a means of persuading legislators to remove the prohibition on cross-border tax collection. The SSTP (Simplified Sales Tax Programme) has attracted support from a majority of states, many of whom have passed enabling legislation - which is however without effect unless Congress recognizes it.

A bill introduced earlier this year by Senator Dorgan would give states authority to tax e-commerce as soon as 20 of them simplify their tax codes unless Congress says otherwise.

In the House of Representatives, a subcommittee in August approved legislation that would make the ban on Internet access taxes permanent and extend the moratorium on other taxes for five years. The House Judiciary Committee will next take up the bill.

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