Net Tax Moratorium Clears Legislative Hurdle

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

The Committee voted 29-8 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-CA), and was
amended by Congressmen Bob
Goodlatte
(R-VA) and Rick
Boucher
(D-VA).

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’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 tax-payer 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.

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.

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 theh

eart 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.

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