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Internet Tax Moratorium Threatened

An extension of the ban on new Internet taxes could fall into limbo if the U.S. Senate adjourns until next week because of the anthrax threat in the nation's capital.

A scaled back extension of the ban was being pushed for quick action in the Senate after the House passed the measure on a voice vote Tuesday.

However, dozens of Senate Majority Leader Tom Daschle's staff have tested positive for exposure to anthrax, congressional leaders said today, and the House is being closed at the end of business today for screening for anthrax.

Anthrax spores were found in Senate mail machines and a portion of the Senate complex's ventilation system.

"We will not let this stop the work of the Senate," Daschle said at a news conference outside the Capitol. He said 31 people have had anthrax-positive nasal swabs, including two Capitol police officers. Despite the vow to remain open, Daschle said senators "will excuse our staff" so that three Senate office buildings can be tested.

After a mid-day, bipartisan meeting, "there was a clear indication the Senate would stay in session," Sen. Ron Wyden, an Oregon Democrat, was quoted as telling reporters. "It is a very important message that there is no panic in the U.S. Senate."

One of the victims of the anthrax threat should the Senate close could be the Internet tax measure, cut back from five years to two after language supporting the efforts of some states to collect sales taxes on e-commerce transactions was struck down. The measure now would extend until Nov. 1, 2003, the ban preventing taxes on Internet access and multiple and discriminatory Internet taxes.

The current moratorium, which does not address sales tax issues, expires Sunday.

Rep. Christopher Cox, R-Calif., was quoted as saying if the temporary ban lapses "all hell may break loose" because some 7,500 taxing jurisdictions could be "lying in wait, ready to pounce" by imposing a wide range of new taxes on ISPs, other service providers, even telephone service.

Sen. John McCain, senior Republican on the Senate Commerce Committee, said in a letter to Majority Leader Tom Daschle that the measure should be quickly dispatched to the White House, according to an Associated Press report.

McCain said that would give states and business ample time to work out a simplified system to collect taxes that are already owed, but rarely collected, on remote sales via the Internet, catalogue and telephone.

The action by a House panel last week amounted to a substantial weakening of the original bill, which called for a permanent ban on Internet access taxes and a five-year extension of the ban on other discriminatory taxes.

A coalition of states is in the process of simplifying their tax codes with the hope that Congress will allow them to collect sales taxes on remote sellers.

A report earlier this month showed state and local revenue losses approaching an estimated $440 billion between 2001 and 2011 as a result of remote sellers failing to collect sales and use taxes. The study was commissioned by the Institute for State Studies and prepared by the University of Tennessee with data collected by Forrester Research Inc.

The results were used by the National Governors Association (NGA) in its campaign for inclusion of a sales tax provision. It seems safe to say then, that the NGA, while concerned about national security developments, isn't going to be upset if the Senate doesn't get around to passing the House version of the bill.

In fact, in a statement issued Tuesday before the vote in the House, the NGA's Frank Shafroth said that "any extension of the moratorium should be tied to authorization for states that have simplified their sales taxes to collect existing sales taxes."

"The belief that we are talking about adding new taxes to the Internet is simply not true," he said. "These are taxes already on the books. What we're debating is a fairness issue. The question is whether we continue inequities between traditional and Internet retailers."