Internet Tax Ban Efforts Resume

WASHINGTON--Online shoppers may get a tax break, as members of Congress move to ban taxes on Internet access, taxes on Internet transactions involving several jurisdictions, and discriminatory taxes that treat Internet purchases differently from other types of commerce.

Two bills introduced in the past week would make permanent a moratorium of taxes on Internet access; the current moratorium is set to expire in November. One bipartisan measure comes from Sen. Ron Wyden (D-Oregon) and Rep. Christopher Cox (R-California); the other is sponsored by Sen. George Allen (R-Virginia).

Boosting E-Commerce

The two bills differ only on a few technical points, according to Carrie Cantrell, Allen's press secretary.

"I am concerned that if this Congress were to allow discriminatory taxes on Internet access it would allow state governments to exacerbate the economic digital divide," Allen says. "For every dollar added to the cost of Internet access, we can expect to see lost utilization of the Internet by thousands of lower-income families nationwide--and loss of their use of the Internet as a tool for education and opportunity."

Online merchants would suffer as much as the buyers if Internet access taxes were allowed, the Congress members note.

"A decrease in consumption resulting from Internet access taxes could destroy what glimmer of hope remains for many telecommunications and technology manufacturers," Allen says. "We want to help create job opportunities--not burden this important sector of our economy."

Both bills also aim to ban discriminatory taxes--namely sales tax on Internet purchases from companies that have no physical presence in the state where the buyer resides. The bills are separate from the Streamlined Sales Tax Project legislation passed in November, which lets companies impose sales taxes on purchases made online if their home states simplify their fragmented sales tax programs.

Other Options Remain

Adam D. Thierer of the Cato Institute, a libertarian think tank, says many states want to cash in on Internet commerce involving companies that have no operations within their borders.

"The Internet is the purest form of interstate commerce you'll ever find; by its very nature it defies boundaries, and yet states are salivating at how to impose taxes," Thierer says. "This all amounts to a hill of beans that is absolutely meaningless to helping states with their fiscal situations."

Regardless of the effect on state coffers, Thierer believes sales taxes on Internet commerce will eventually become commonplace. However, he expects Congress will stand firm on banning Internet access taxes.

"It just becomes another tax on talking and communicating, which is something people will find very offensive," Thierer says.

Seven states currently have the right to tax Internet access because those states levied taxes on Internet access before Congress passed the first moratorium in 1998. However, the states--New Mexico, North Dakota, Ohio, South Dakota, Tennessee, Texas, and Wisconsin--have largely respected the moratorium and refrained from imposing the access taxes.