US Internet Tax Moratorium Likely To Be Renewed

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

23 April 2001

As the October deadline for expiry of the current Internet tax moratorium gets closer, so Congress is beginning to get real on the subject of continuing it. There is thought to be a majority in both houses for extending the bans on Internet access taxes and on the imposition of sales and use taxes on e-commerce. There is also strong support for an extension of the R & D tax credit.

Addressing an audience of high-tech business leaders this week in suburban Virginia, Vice President Dick Cheney said that the US should put a permanent ban on Internet access taxes, and spoke in favour of the R & D tax credit, which expires in 2004. He said the administration's policies would help the recovery of an industry facing uncertain economic prospects.

"When you've had some experience in the private sector and come from a business background, you realize that the government doesn't create prosperity," said the Vice President, "All it can do is help create conditions favorable to prosperity." Cheney headed energy company Haliburton before being picked as President Bush's running mate.

Cheney called on Congress to make permanent a current ban on Internet access taxes and extend a moratorium on Internet sales taxes. Both tax bans are set to expire in October.

The moratorium on e-commerce sales taxes is a little harder to justify than the access tax ban, since eventually there are no grounds for giving the Internet an advantage over other distribution channels. In the short term, however, and especially after the last nine months, it is probably right to stimulate e-commerce.

The argument that it's impossible for Internet sellers to cope with 7,000 different sales and use tax regimes has had considerable force, but is beginning to be dented by the good progress being made by the SSTP (Streamlined Sales Tax Project) in which currently 32 states are working together to design a coherent, nation-wide sale tax regime which could be applied to inter-state sales.

Currently the Supreme Court's 1992 Quill Corp. v. North Dakota decision forbids states from collecting sales or use taxes from out-of-state sellers that don't have a physical presence, or "nexus," in a state. It will take heavyweight legislation to overcome that ban, and there's no chance of that in the next few years. So, expect a continuation of the moratorium, perhaps for three or four years; but also expect the legislation to pave the way for an eventual nation-wide standardised sales tax system.

Recommended