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Senators Resume Work On E-Tax Moratorium

by Mike Godfrey,, Washington

09 November 2001

On Monday, a bi-partisan group of senators sent a "Dear Colleague" letter asking the rest of the Senate to support a proposal that would introduce a new 2-year moratorium on new Internet taxes, without attempting to include enabling wording for the Streamlined Sales Tax Program (SSTP) as is the case with a competing bill sponsored by Senator Mike Enzi (R - Wyo.).

The letter was signed by John McCain (R - Ariz.), Ron Wyden (D -Ore.), Patrick Leahy, (D - Vt.), Barbara Boxer, (D - Calif.), Conrad Burns, (R - Mont.) and George Allen, (R - Va.).

"Several states and local government organizations are opposed to a 'Congress directed' road map that they see as an unreasonable intrusion in their own processes," the letter says. "Furthermore, while we recognize that a two-year moratorium is the best we can do this year, it is important to note that there is wide consensus that Internet access should never be taxed and that two years, even by the states' calculation, may not be enough time to resolve the plethora of conflicts facing them regarding tax simplification."

The National Governors Association, the National Association of Counties, the Council of State Governments and the International City/County Management Association immediately replied with a letter to Senate leaders Thomas Daschle (D - S.D.) and Trent Lott (R - Miss.) voiced support for the Enzi bill, saying it would "create a level playing field so that remote and Main Street sellers receive equal treatment."

The House has already passed a bill extending the (now-lapsed) moratorium for three years, but the Senate failed to pass a similar bill in time. After the US federal moratorium on new e-taxes expired on October 21st, some observers expected the states to rush through a plethora of new internet taxes while they had the chance, but it doesn't seem to have happened - yet.

There is wide agreement that sooner or later there will have to be a coherent, US-wide approach to taxation of e-commerce, whether or not there is another moratorium. The underlying problem that has to be solved is the treatment of remote e-sales (ie across state lines): the Supreme Court banned taxation of remote sales, not so much on doctrinal grounds as because of its unfeasibility. But sales on the internet are far more likely to be remote than not, so that the inevitable long-term growth of e-commerce will start to eat away at the states' tax-base.

It's still unknown whether states will begin to impose their own taxes on the internet. Many of them are suffering from revenue shortfalls as the economy turns down, and are required to balance their budgets. “If you are a state and you want more money, Internet access is a very juicy target,” said Grover Norquist, president of the anti-tax group Americans for Tax Reform. “It’s been protected for three years.”

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