US Net Tax Bill On Business Activity Introduced This Week

by Mike Godfrey, Tax-News.com, Washington

19 July 2001

A bill was introduced on Tuesday this week in the House of Representatives which aims to continue the current moratorium on Internet access taxes as well as exempting Internet-based businesses from paying company income and franchise taxes.

Entitled the Internet Tax Freedom Act, the bill was introduced by Bob Goodlatte R-VA and Rick Boucher D-VA, and will make permanent the moratorium which is due to expire in October. It highlights the business activities that would become tax exempt such as hiring contractors within a state to create or service a web site. In addition, tax would not be imposed on an Internet Service Provider processing orders through a server that is physically located in a state.

The Direct Marketing Association (DMA) has voiced its support for the proposed legislation with a statement from the vice president, Frank Julian who said: 'The DMA praises Congressman Bob Goodlatte for his continuing support of remote retailers, many of whom rely on the Internet to sell their wares. Congressman Goodlatte has led the charge to ensure that Internet access is available to all Americans. We appreciate his efforts to extend the moratorium, as well as tackling the difficult issue of Business Activity Tax nexus. Congressman Goodlatte has certainly been a friend to the direct and interactive marketing industry, and we thank him for supporting a moratorium, which is a boost for e-commerce and America's economy as a whole.'

Although the bill avoids mention of the online sales tax issue, it is an update of a 1959 law that forbids states from levying activity taxes on businesses that do not possess a substantial physical present in a state. Companies would be required to either lease a property or employ staff in a state for at least 30 days before they are subject to tax.

In American press reports Bob Goodlatte has called for the government to tackle the issue of business activity taxes. He argued: 'this expansion of the states' power to impose business activity taxes, left unchecked, will have a chilling effect [on e-commerce].'

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