Congress May Keep Internet Tax-Free

WASHINGTON, D.C. -- The U.S. House of Representatives Tuesday voted to pass a bill that would extend the current moratorium on Internet taxes for two years, aiding states as they work together to invent a new tax structure that incorporates Internet commerce.

The House passed the bill, called the Internet Tax Nondiscrimination Act, with a voice vote. It aims to extend legislation passed on October 1, 1998, which prohibited state or local governments from imposing new taxes on Internet access and on goods purchased over the Internet.

The existing moratorium is set to expire on October 21. Under the new House bill, that deadline would be postponed until November 1, 2003. The bill must now be approved by the U.S. Senate, and then by the President.

House members debating the bill Tuesday noted the extension should give states adequate time to flesh out a new, simplified tax structure that fairly treats sales made over the Internet. The bill was originally written to extend the moratorium for another five years.

Companies selling products on the Internet don't have to collect state sales tax unless the business has a physical presence in the state where the buyer made the purchase, the result of a 1992 Supreme Court decision. The decision originally was designed to address tax collection on mail order and catalog sales, but grew to include a much larger pool of sales with the advent of Internet commerce.

Local Losses

Research published by the Center for Business and Economic Research at the University of Tennessee suggests that state and local governments have lost out on about $13.3 billion in tax collections this year due to untaxed Internet sales.

The National Governors Association, which is working on an effort to create a simplified tax structure that spans the country, has backed the moratorium. They are charged with the task of flushing out a tax structure that currently includes more than 7000 jurisdictions, all of which have their own tax policies. It is a task they have said can be accomplished with more time.

During the debate, which was broadcast by C-Span, several legislators worried that if the 3-year-old bill were allowed to expire, it would send a signal to states and local governments that the Internet is fair game for new taxes.

The bill now moves to the Senate, where pressure is growing to send the bill swiftly to the President for a signature. Arizona Republican Senator John McCain Monday urged his colleagues to back two more years of a moratorium in a letter sent to Senate Majority Leader Tom Daschle.