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Congress Fails To Extend Net Tax Ban In Time

by Mike Godfrey,, Washington

22 October 2001

Despite the fact that the Republican dominated House of Representatives voted on Tuesday to prolong the ban on internet taxes, it became clear late last week that the moratorium on discriminatory taxation would end on Sunday. No-one now knows how many state legislatures are poised ready with internet taxation measures which they will rush into law this week before the Senate has a chance - if it wants to take it - to correct the situation.

Although the substantial amount of anti-terrorist legislation being pushed through, and the anthrax attacks at the Senate have undoubtedly contributed to Congress' failure to legislate the extension on time, there are those that feel the moratorium is being 'held to ransom' over the issue of state sales taxes.

Online retailers are hopeful that an agreement can be reached this week, but that seems increasingly unlikely, given that for the past few months, as fast as some factions have been trying to unpack the separate issues of access tax, discriminatory taxes, and sales taxes, others have been trying to piggyback them together.

Under current law, out-of-state vendors (such as e-tailers) cannot be compelled to collect state sales taxes. In theory, customers are required to pay the tax, but more often than not this doesn't occur, a situation which the states say is costing them millions of dollars in uncollected revenue. The online contingent, however, argues that it would be unfair and unworkable to expect them to calculate the correct rates for the nearly 7,000 states, counties, cities and towns which levy sales taxes.

Although the majority of the states agree with this, and in fact 20 have succeeded in simplifying the multiple layers of taxation levied, there is a widespread feeling that Congress should commit to changing the law once tax simplification has occurred, and this is the issue which has divided the Senate for so long.

Senators such as Democrat Byron L. Dorgon, and Republican Mike Enzi believe that the issue of sales tax must be addressed as a matter of priority, and argue that any extension of the access tax moratorium should be tied to a commitment to changing the sales tax laws if the states succeed in simplifying their systems.

However, other legislators, such as liberal Democrat Senator Ron Wydon, and Republican George Allen feel that the possibility of an access tax is the more pressing issue, which should not be lumped in with the sales tax proposals. Speaking to the Washington Post last week, Senator Allen explained: 'What they are doing is holding hostage the issue of the moratorium on access and discriminatory taxes as a way of getting round the law on sales taxes.'

It has been estimated that an access tax could amount to as much as 15% of the monthly charge paid by users to their internet providers, and Senator Allen has expressed fears that this could seriously disadvantage lower income families, and prevent them from taking advantage of online facilities.

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