Moratorium on I-Taxation
Clears First Legislative Hurdle

Virginia governor, representatives play key roles in crafting national Net taxation policy. Could we be feeling a subtle AOL influence here?

by Patricia Fusco ISP-Planet Managing Editor [May 5, 2000]

A bill extending the current Internet tax moratorium by five additional years cleared the U.S. House Judiciary Committee late Thursday.

The Committee voted 29 to 8 to pass an amended version of HR3709 and extend the current moratorium against multiple and discriminatory taxes on the Internet another five years, through October 21, 2006.

The amended bill also eliminates all taxes on Internet access charges, repealing a grandfather clause currently existing under federal law, which left state taxes if Internet services on the law books.

The bill was sponsored by Christopher Cox (R-Calif.), and was amended by Congressmen Bob Goodlatte (R-Va.) and Rick Boucher (D-Va.).

Boosters beat the drums
Rep. Goodlatte said keeping the Internet free from new, discriminatory access taxes benefits consumers and businesses, as well as state and local governments.

"The growth and potential of the Internet and electronic commerce is boundless and should not be inhibited. It is encouraging to see the House Judiciary Committee take swift action on this important legislation," Goodlatte said.

The bill codifies two key policy proposals included in the Advisory Commission on Electronic Commerce (ACEC) 's report to Congress delivered to Capitol Hill last month.

Jim Gilmore, Virginia Governor and ACEC chairman, said the House action was a big step toward unleashing the power of the Internet by eliminating e-commerce-inhibiting fees.

"This Congressional action validates the Commission's efforts on behalf of the people and the Internet," Gilmore said. "The Committee's action is a constructive step towards tax freedom on the Internet and is a victory for the people of the United States."

Stanley Sokul, Association for Interactive Media independent consultant and ACEC member, said the House listened to the Committee's report and took the appropriate action.

"The Judiciary Committee's favorable vote today on some of the key components of the Advisory Commission's Report proves that the Commission process was not an empty exercise, but is having a real impact on Capitol Hill," Sokul said. "This is great news for the continued dynamism of the Internet economy, and for the American people."

Grover Norquist, Americans for Tax Reform president and ACEC member, heralded the news as a great victory for taxpayers.

"This lays the ground work for even more taxpayer-friendly Internet legislation next year," Norquist said.

The five-year extension of the moratorium was recommended by a majority of the Advisory Commission on Electronic Commerce in a report handed to Congress on April 12. (See related story: Tax Report is an Insult to Democracy.)

The moratorium is aimed at encouraging the growth of e-commerce by preventing states and local tax jurisdictions from imposing levies on goods and services sold over the Internet.

Others' enthusiasm is more muted
There is concern among some government officials that the galloping growth of Internet sales and e-commerce could undermine the sales tax revenues used to subsidize local services, including public education, road construction and emergency services.

Dean Andal, California Board of Equalization chairman and ACEC member said the extension of the Internet tax moratorium is a good first step, but that there remains much work to be done in order to clarify e-commerce tax issues.

"Now the committee can get on with real business at hand, which is developing clear nexus standards," Andal said. "Developing national bright-line nexus standards was the heart of the U.S. Advisory Commission's Report."

Moratorium supporters contend that an additional five years is needed to develop a uniform, nationwide, sales tax plan for Internet transactions.

Brick-and-mortar retailers protest what they see as a privileged position for new Web-based businesses, including those that have established a substantial Web presence.

Internet retailers currently enjoy the same status as catalog sales, only collecting sales tax from customers in areas where the companies have a physical presence.

The bill will reach the full House of Representatives next week.

—End

Related story: Online Tax Lobby is Down but Not Out