Bush Backs Internet Tax Moratorium

Treasury Secretary John Snow and Commerce Secretary Don Evans have sent a letter to Congress urging lawmakers to extend the existing moratorium on new and discriminatory Internet taxes.

The current moratorium on Internet taxes — including taxes on Internet access, multiple-state taxation of a single item bought online, and discriminatory taxes that treat Internet purchases differently than other types of sales — is set to expire in November.

In the letter to Rep. James Sensenbrenner (R.-Wisc.), chairman of the House Judiciary Committee, Snow and Evans said government “must not slow the roll-out” of Internet services with new taxes.

The support of the Bush administration adds momentum to the movement to extend the current moratorium. In April, Senators Ron Wyden (D-Ore.) and Conrad Burns (R-Mont.) joined Rep. Christopher Cox (R-Calif.) to underscore their efforts to support legislation to indefinitely extend the moratorium.

Wyden and Cox sponsored the original three-year moratorium in 1998. It was extended for another two years in 2001 on legislation sponsored by Wyden and Cox and the two have again filed bills (H.R. 49 and S. 51) to keep the Internet tax free.

Businesses and organizations throwing their weight behind the Wyden-Cox legislation includes E-Bay!, the Direct Marketing Association, Federated Department Stores, Software and Information Industry Association, U.S. Internet Industry Association, Software Finance and Tax Executives Council, Information Technology Association of America, and the American Electronics Association.

If a moratorium, permanent or otherwise, is passed by Congress, it would not, in all probability, apply to the growing movement to enforce sales taxes on Internet sales.

Currently, sales and use taxes are owed on all online transactions, but states are prohibited from requiring remote sellers to collect and remit those levies. A 1992 U.S. Supreme Court decision said states can only require sellers that have a physical presence or “nexus” in the same state as the consumer to collect so-called use taxes.

The court ruled that the current patchwork of roughly 7,500 taxing jurisdictions across the country is too complex and burdensome for online retailers to charge and collect sales taxes. In order to collect the taxes, the court ruled, states would need to first simplify the existing system.

In November, representatives from 32 states approved model legislation designed to create a system to tax Web sales. Spearheaded by the National Governors Association (NGA), the Streamlined Sales Tax Project (SSTP) would require participating states to have only one tax rate for personal property or services effective by the end of 2005. Included in those services would be online sales.

The coalition of states voted to require participating state and local governments to have only one statewide tax rate by 2006 for each type of product taxed.

The NGA launched the STTP in 2000 with the long-term goal of presenting Congress and the courts with a system that would allow the states to collect sales taxes on online sales and catalogue purchases.

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