US Senate Prepares To Extend Internet Tax Moratorium

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

06 April 2001

House Speaker J. Dennis Hastert (R-IL) said on Tuesday that Congress should extend the Internet tax moratorium which expires this October. Said Hastert: "It prevents thousands of state and local taxing jurisdictions from using the Internet as a cash cow. Rather than slow down the Internet with a slew of new taxes, we must extend the moratorium and allow the Web to reach its full potential."

Hastert underlined that the Internet tax moratorium does not deal with sales taxes. "Debate on sales tax simplification has gone on since long before the contemporary Internet. If we require that we resolve the complicated issue of sales tax simplification before we extend the moratorium, we risk causing even greater harm to burgeoning e-commerce."

In fact there are already three pieces of legislation in the Senate which address the issue of whether to tax or not to tax interstate sales via the Internet.

Sen. Byron Dorgan,(D - North Dakota), has proposed a bill that would extend the existing 3-year moratorium (part of the 1998 Internet Tax Freedom Act) to the end of 2005 while encouraging states to agree on a uniform manner of applying a sales tax to all goods. Under Dorgan's proposed streamlined system, states would create an identical sales tax to be applied to a product whether it was bought at a store, online, through the mail, or over the phone.

A similar bill has been offered by Sen. Ron Wyden, (D - Oregon), and Sen. Patrick Leahy, (D - Vermont), although it would extend the moratorium through 2006, and it differs from Dorgan's bill because it doesn't automatically enforce a streamlined sales tax system if the States agree on one, but merely ensures that the Senate will vote on a proposal. A similar bill was passed in the House last year.

The third bill, introduced by Sen. Judd Gregg, (R - New Hampshire), and Sen. Herb Kohl, (D - Wisconsin), proposes a blanket ban on sales taxes for all goods sold over the Internet except where the seller has substantial nexus in the state where the sale takes place. "If a business is located out of state and simply ships products to consumers there, it is not part of the local economy," Kohl said. "It should not be subject to taxes and tax collection burdens that support a community not its own."

Frank Shafroth of the National Governors' Association doesn't think the Kohl bill stands much chance, and that the Wyden bill is the most likely to make it through the Senate Commerce Committee.

Last September, California Governor Gray Davis twice vetoed a bill that would have prevented California retailers that created a subsidiary to handle online orders from avoiding a sales tax.

.

Recommended

Write a comment