House Votes For US Internet Tax Ban Extension

by Leroy Baker, Tax-News.com, Washington

18 October 2001

The House voted Tuesday to extend the internet tax moratorium, which was due to expire on Sunday, for a further two years, and put off the issue of whether individual states should be allowed to charge tax on online sales.

The original ban on internet taxes, put in place in 1998 to protect the then fledgling e-commerce industry from a flurry of burdensome taxation, prohibited levies on internet access, and forbade the imposition of any other internet specific taxes, thus temporarily freeing the more portable online businesses from state specific sales taxes.

However, as the deadline for its expiry drew closer, the country's state authorities, who have protested that they lose billions of dollars from undeclared, and therefore uncollected sales tax on internet transactions, were beginning to eye e-tailers hungrily.

Industry groups such as the Direct Marketing Association, have praised the House's decision, although not unreservedly: 'While the DMA believes that the moratorium should be extended for a period of five years or more, it is absolutely critical that this legislation not be allowed to expire,' explained the DMA President, Robert Wientzen.

Republicans have urged the Senate to pass the extension legislation quickly, and online retailers are still a little twitchy, fearing that a lapse in the legislation could set a precedent for state sales tax on online purchases, as the issue has not yet been resolved.

However, not everyone is overjoyed by the news, and bricks-and-mortar retail businesses are particularly dismayed, as they believe that it is unfair of the government to force them to pay sales taxes when their online counterparts are being given an easy ride. According to Frank Shafroth, director of federal and state relations at the National Governor's Association, the House's verdict: 'doesn't do the trick to help state and local governments collect the taxes owed and level the playing field for Main Street retailers.'

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