President Bush Will Sign Internet Moratorium Bill

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

20 November 2001

After the Senate passed a 2-year internet tax moratorium last week, matching a previous House bill, Congress yesterday sent its combined bill to the President, who said he would sign it, although he would have preferred a longer period.

"The administration believes that government should be promoting Internet usage and availability, not discouraging it with access taxes and discriminatory taxes," the White House said in a statement supporting the legislation.

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. An amendment to allow sales tax collections after 20 states agreed to collect tax for each other was defeated.

Many organisations have welcomed the new moratorium.

"The moratorium's extension will allow businesses to develop and stretch their wings on the Internet," said H. Robert Wientzen, president and CEO of the Direct Marketing Association. "The moratorium's extension will ensure that e-commerce can continue to grow..."

"Resolution of the Internet access tax moratorium is a victory for the economy because it reduces the amount of uncertainty firms have about whether states will effectively reduce online traffic by putting up toll roads," said Frank Julian, a DMA member and operating vice president and tax counsel, Federated Department Stores Inc.

"Over the next two years states will have the opportunity to complete a simpler and more streamlined sales tax process that will clear up any confusion about taxes as they relate to Internet and other remote sales," said Matt Kisber, co-chair of NCSL's Executive Committee Task Force on the State and Local Taxation of Telecommunications and Electronic Commerce.

But Wyoming Senator Michael Enzi is one of those who would prefer to legislate to encourage the development of a rational basis for Internet sales taxation.

'If present trends continue,' says Mr Enzi, 'and sales on the Internet remain untaxed, revenues will continue to decline. Other forms of taxes, such as property or income taxes, may then have to be increased to offset these lost revenues. In addition, those states that do not have a state income tax may be forced to initiate one to address this growing problem.

'In response, I introduced the Internet Tax Moratorium and Equity Act (S. 1567) on Oct. 18 and have been working to move the legislation through Congress. This new bill will make permanent the existing moratorium on Internet access taxes, and it will extend the moratorium on multiple and discriminatory taxes for an additional four years through Dec. 31, 2005. That extension would allow states and localities the time they need to develop a streamlined sales- and use-tax system, which would include a single, blended tax rate for each separate state and make it easier for remote sellers to implement and understand the new system. My bill would also encourage states to enter into an Interstate Sales and Use Tax Compact through which members would adopt this streamlined system.'

Now Congress has two years to work on such bills as Senator Enzi's, which will probably be long enough for the SSTP to have taken firm root in a majority of US states.

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