Internet Tax Ban Gains Support

WASHINGTON--More than 100 members of Congress have signed on to make permanent a five-year moratorium against levying taxes on the Internet that aren't levied elsewhere.

The Internet Tax Non-Discrimination Act is sponsored by Senator Ron Wyden, an Oregon Democrat, and Representative Christopher Cox, a California Republican. Their bill would extend the sometimes-misunderstood Internet Tax Freedom Act, which bans the 7500-plus taxing jurisdictions in the United States from creating taxes unique to the Internet. The new bill, introduced in January, would ban Internet access taxes and multiple assessments such as "bit taxes" that would tax Internet information as it moves across servers in many jurisdictions.

This latest bill doesn't make the Net an entirely tax-free zone, however. It requires states, cities, and other jurisdictions with tax authority to treat e-commerce the same way they treat other nonlocal sales, such as catalog and telephone sales, the legislators say. States are currently barred from collecting sales tax on retailers not within their borders.

In fact, most states are trying to simplify their tax codes so they can share the process of collecting and distributing sales tax on Internet purchases.

Protecting E-Commerce

Senator Wyden and Representative Cox say their bill is an attempt to protect e-commerce from tax measures that could quash Internet business.

"The fact of the matter is there is not a single state in the country that can show that it has been hurt by its inability to discriminate against electronic commerce," Wyden said Monday. "Under the Cox-Wyden bill, you simply must treat merchants online like you treat those offline. It is simply about...technological neutrality." More than 100 representatives have signed on as cosponsors.

Wyden, Cox, and Representative Chris Cannon, a Utah Republican, are pushing for passage of the Internet Tax Non-Discrimination Act. Cannon's House Judiciary Subcommittee on Commercial and Administrative Law will host a hearing on the bill Tuesday. He said he expects the House Judiciary Committee to approve the bill quickly and then come before the full House of Representatives for a vote.

The tax moratorium, in effect since 1998, will expire on November 1. The Internet Tax Freedom Act was sometimes misunderstood as prohibiting jurisdictions from levying any sales taxes against Internet companies.

Internet sales make up only about 3 percent to 4 percent of all retail sales in the United States, Wyden noted.

"What we are insistent is we don't come up with ways to try and soak people who are in the information sector in ways that don't have an offline analog," Cox said. "Our law is working. The Internet is growing."

States Eye Sales

The National Governors Association, which has pushed for collecting sales taxes on Internet commerce, has not taken a position on the Cox-Wyden bill because it doesn't prohibit such a sales tax, if that tax is applied to other nonlocal sales, said a spokesperson. However, the association has taken stands on Internet sales tax issues.

Representative Zoe Lofgren, a Silicon Valley Democrat, introduced a similar bill Thursday. Lofgren's legislation would extend the tax moratorium another five years, instead of making it permanent. "She believes a five-year term would be much more effective in gauging where the growth of the Internet is and where we could go in the future," said a Lofgren spokesperson.

But Wyden and Cox said that Congress should stop returning to the issue every few years. Lofgren's bill would be the third moratorium since 1998.

Governors can impose in-state sales taxes and can audit retailers for compliance, Wyden noted.

"What this issue has always been about is that when elected officials do that, they get a lot of political heat," Wyden said. "So they say instead, 'We'll go out and try to stick it to somebody 3000 miles away... it's a lot easier to tax a business that's located 3000 miles away than to tell somebody who lives locally that they have to pay up on what is owed."

The Cox-Wyden bill has received letters of support from EBay, the Direct Marketing Association, the Software and Information Industry Association, the U.S. Internet Industry Association, and others in the tech industry.