U.S. House Votes to Extend Internet Tax Ban

The U.S. House of Representatives voted
late Wednesday to extend the current moratorium on new Internet taxes for
an additional five years.

The moratorium passed the House with a 352- to-75 vote after nearly six
hours of debate. The Internet Non-Discrimination Act [H.R. 3709] extends
the current moratorium set to expire in October 2001, to 2006.

The bill was sponsored by Christopher Cox (R-Calif.) and was
amended by Congressmen Bob
Goodlatte
(R-Va.) and Rick
Boucher
(D-Va.).

House Policy Chairman Cox compared the art of successful e-commerce
taxation to plucking a goose, in that the objective is to get the greatest
amount of feathers with the least amount of squawking.

“Recognizing that,” Cox said, “policymakers will be wise to steer clear of
new Internet taxes, if the object is to protect and expand the tax base.
Our latest legislation will be a useful means of ensuring that result.”

Rep. Goodlatte said Internet access must remain free of
burdensome regulations.

“Our children should not be taxed for researching school projects
online. Consumers should not have to pay to simply browse e-commerce sites
on the Internet,” Goodlatte said. “The Internet must remain unfettered by
burdensome taxes and regulation, to ensure continued growth and innovation
in the 21st century.”

The bill seeks to protect e-commerce from excessive tax burdens because the
industry remains in its infancy. Exorbitant taxes could over-burden online
businesses and kill e-trade in the cradle. As it stands, the bill would
also permanently ban sales taxes on Internet access fees.

The bill exceeds by three years what the Clinton Administration supports,
setting the stage for a possible Clinton veto of the e-tax portion of the
bill, should the Senate craft similar
legislation.

Joe Lockhart, White House spokesman, said that the tax moratorium should be
only extended two years past its current expiration date because it
provides an unfair tax break to Internet-based businesses at the expense of
traditional bricks-and-mortar retailers.

“We think if you go and extend out through five years you really run the
risk of putting off some decisions that need to be made,” Lockhart said.
“We oppose, and are for a permanent moratorium on any excess taxes, where
we oppose any discriminatory taxes.”

Lockhart added that the current mark-up language of the bill merely
postpones the inevitable.

“Our concern is if you move, you just kick the can down the road for
another five years,” Lockhart said. “Congress states all the affected
parties will find a way to put off the tough decisions that need to be made
as far as how state and localities handle sales tax and their own tax issues,”

Lockhart said that the Clinton Administration believes that the federal
government has a partnership role to fulfill with state governors.

“I think the President talked about it the last time the governors were
here, it was a big part of the conversation,” Lockhart said. “We support a
two-year extension because, our position is that we are opposed to
discriminatory or access taxes. But we think if you go and extend out
through five years you really run the risk of putting off some decisions
that need to be made.”

The House bill would also remove an exemption granted to 10 states under
the current e-tax moratorium. Connecticut, Montana, New Mexico, North
Dakota, Ohio, South Dakota, Tennessee, Texas, Washington and Wisconsin and
16 cities would have to repeal taxes on their law books.

Online sales currently enjoy the same status as catalog sales, only
collecting tax from

customers in areas where the companies have a physical
presence.

Some legislators were also concerned that the growth of Internet sales
could deprive local authorities of an important source of revenue for
critical services like fire and safety services and public schools and roads.

Opposing the five-year extension are state and local government officials,
including 39 governors worried about future revenue losses for public
services. Traditional retailers are also opposed to the bill, including
large retail chains like Wal-Mart Stores,
Inc.
and Sears,
Roebuck and Co.
that fear Internet competitors will gain
an unfair advantage due solely to tax laws.

The U.S. Senate has yet to come up with a similar bill. Senate Commerce Committee Chairman John McCain (R-Ariz.) delayed a
panel vote on extending the moratorium.

When McCain introduced the bill in September 1999, the chairman of the
Senate Committee on Commerce, Science and Transportation said the McCain
bill, S.1611, would make the moratorium on sales and use taxes for
e-commerce permanent, and would encourage the establishment of the Internet
as a world-wide tax-free zone.

“Commerce conducted through the Internet is experiencing tremendous growth.
This growth helps our nation’s economy by creating new jobs and new
opportunities for businesses,” McCain said. “This legislation will ensure
that Internet commerce continues to grow by keeping it free from
burdensome, anti-consumer taxation.”

Under its original mark-up language the McCain proposal would make
permanent the moratorium on taxation of e-commerce transactions.

McCain has not taken action to return the bill to the committee for a vote
at this time.

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