RealTime IT News

E-Commerce Community Hails Tax Ban

The e-commerce community was breathing a sigh of relief today after Congress finally sent the President a bill to continue the moratorium on new Internet taxes for two more years.

Groups as diverse as the Direct Marketing Association and the National Conference of State Legislatures were hailing the vote.

President Bush said he would sign the legislation, although he would have preferred a longer period of tax relief. The House of Representatives last month approved an identical bill.

The Senate approved the measure Thursday on a voice vote after rejecting an amendment that could have led to future collection of state taxes on Internet sales and possibly Internet access.

"The administration believes that government should be promoting Internet usage and availability, not discouraging it with access taxes and discriminatory taxes," the White House said in a statement supporting the legislation.

The old moratorium expired Oct. 21, but as predicted, there was no real scramble on the part of local governments to devise new taxes.

But it seems clear that companies doing business on the Internet eventually will be required to collect sales taxes, at the very least. 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.

And the amendment that was defeated would have required a congressional vote to allow sales tax collections after 20 states agreed to collect for each other.

The stakes for government are huge: a report in October 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.

A 1992 Supreme Court decision currently prohibits states from collecting taxes from catalog, Internet or other "remote" transactions unless the retailer has a physical presence in the state.

E-commerce companies, of course, which do business in all 50 states, have long contended that collecting sales taxes from thousands of state and local jurisdictions would put an undue hardship on their nascent businesses.

Senators favoring a simple extension argued that more study was needed before a system was put in place that could allow a state to impose a direct tax on residents of another state.

In any case, today's news was welcome to many.

"The moratorium's extension will allow businesses to develop and stretch their wings on the Internet," said H. Robert Wientzen, president and CEO of the Direct Marketing Association. "The moratorium's extension will ensure that e-commerce can continue to grow..."

"Resolution of the Internet access tax moratorium is a victory for the economy because it reduces the amount of uncertainty firms have about whether states will effectively reduce online traffic by putting up toll roads," said Frank Julian, a DMA member and operating vice president and tax counsel, Federated Department Stores Inc.

"The American economy and the high-tech industry benefit from the Senate's extension of the Internet tax ban," said Bill Archey, president of the high-tech industry group AeA.

Even the National Conference of State Legislatures (NCSL) applauded the vote, saying that it is "a validation of all the progress states have made on sales tax simplification in the past two years."

"Over the next two years states will have the opportunity to complete a simpler and more streamlined sales tax process that will clear up any confusion about taxes as they relate to Internet and other remote sales," said Matt Kisber, co-chair of NCSL's Executive Committee Task Force on the State and Local Taxation of Telecommunications and Electronic Commerce.