House Plans Wednesday Vote on Internet Tax Ban

The U.S. House of Representatives is expected to vote on legislation Wednesday to permanently extend the existing temporary ban on Internet access taxes that expires on Nov. 1. The bill amends the Internet Tax Freedom Act (IFTA), which imposes a federal moratorium on state and local taxes on Internet access services and certain Internet-based sales transactions.

The Internet Tax Nondiscrimination Act (H.R. 49), sponsored by Rep. Christopher Cox (R.-Calif.), also would also eliminate a grandfather clause in the original legislation that gives 10 states that were already taxing Internet access an exemption from the moratorium.

The Congressional Budget Office (CBO) estimates that repealing the grandfather clause would result in revenue losses for the 10 states and for several local governments totaling between $80 million and $120 million annually beginning in 2004.

Similar legislation was approved by the Senate Commerce Committee in late July but has not been scheduled for a floor vote.

“Twice Congress has said that new taxes discriminating against Internet users would be regressive, unfair, and destructive to our economy and our society. It is time to permanently ban them,” Cox said in a statement to “Ensuring that Internet access is not subject to unfair and discriminatory taxes is a priority in the House, and we expect movement on the House floor this week.”

If the legislation is ultimately 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.

Cox, along with Sen. Ron Wyden (D. Ore.) sponsored the original three-year moratorium on Internet access taxes in 1998. It was extended for another two years in 2001 on legislation sponsored by Wyden and Cox.

News Around the Web