President Bush Signs Internet Moratorium Bill

by Mike Godfrey, Tax-News.com, Washington

30 November 2001

US President George Bush signed into law this week the Internet Nondiscrimination Act to extend the current Internet tax moratorium for a futher two years. A statement from the US Treasury confirms that the aim of the extension is to provide additional time to analyze the impact of e-commerce on local and State tax receipts, while ensuring that the growth of the Internet is not slowed by new or discriminatory taxes. New technology, claimed the press release, shouldn't be treated as a new means of increasing taxes on the American people.

Although the previous moratorium expired on October 21, there was no real scramble on the part of local governments to devise new taxes. Eventually of course there will have to be legislation to allow Internet taxation, but Congress has sided with those who say that the multiplicity of sales tax regimes across the country would make it impossible for e-commerce companies to collect tax effectively.

A 1992 Supreme Court decision currently prohibits states from collecting taxes from catalog, Internet or other "remote" transactions unless the retailer has a physical presence in the state. In response, forty states have joined the SSTP initiative (Simplified Sales Tax Program) to create a harmonised sales tax regime; but it is not yet sufficiently advanced to convince Congress that it will be effective.

President Bush said he wanted the bill to 'protect American consumers from an unwanted tax surprise when they purchase gifts online for friends and family.'

He added that the growth of the Internet should not be slowed by additional taxation and described it as 'an innovative force that enables such applications as distance learning, video conferencing and precision farming. Government must do its part to make access to these services affordable.'

While it may be good news for shoppers, State governors are not so pleased that they will be losing out on some much needed revenue for the next two years at least.

'This is a true loss of revenue and something needs to be done,' said Christine LaPaille of the National Governors Association (NGA) in Washington. As an example, the NGA says Texas is facing a budget crisis and if online sales remain tax-free Texas will feel the loss of almost $5 billion in revenues by the year 2011. And, says the NGA, this could be true of almost any State in the country.

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