Congress may not settle the issue of how state
sales taxes should apply to electronic commerce, but there's broad
support for legislation permanently banning new state or local
taxes that single out the Internet.
The bill's main sponsors, Sen. Ron Wyden, D-Ore., and Rep.
Christopher Cox, R-Calif., said people on both sides of the sales
tax debate agree the current three-year ban on new Internet taxes
should be extended indefinitely.
"Our bill simply says you can't stick it to the online world,"
Wyden said Thursday. "We shouldn't discriminate against the most
vibrant part of the economy."
The law enacting the temporary ban, which expires in October
2001, also created a congressional commission to recommend future
tax policy for the Internet. Its report is due in April, and both
Wyden and Cox said they expected one recommendation would be an
extension of the ban on new taxes.
"The current hands-off tax policy is working," Cox said.
It is unlikely, however, that the advisory panel will reach
consensus on how existing state sales taxes are collected from
Internet purchases. Even if it did, Congress is reluctant in an
election year to try to overturn a Supreme Court decision requiring
a remote seller catalog, Internet or otherwise to have a
physical presence in a state before that state can force it to
collect and remit sales taxes.
Some not all Internet merchants charge sales tax to their
electronic customers, but there is widespread confusion over which
businesses must charge which customers, and some states believe
they are not receiving all the tax revenue they are entitled to
In testimony this week to Congress, Michigan Gov. John Engler,
like most governors a proponent of a new system to collect sales
taxes from the Internet, agreed that other taxes should be banned
on such things as Internet access.
"We should not impose new surcharges or access fees to this
emerging technology," Engler, a Republican, told the Senate Budget
Several members of Congress are pushing a bill that would also
permanently ban states from imposing sales taxes on e-commerce a
position central to the presidential campaign of Sen. John McCain,
R-Ariz. but other lawmakers prefer waiting until there is
conclusive evidence about the Internet's impact on state government
revenue. The sales tax now accounts for about $150 billion in
revenue to states, about two-thirds of their total take.
"What if they find that their revenue sources are coming up
short?" said Sen. Pete Domenici, R-N.M. "This hasn't happened
yet, but if it does either other forms of state and local taxation
will be needed, services will be reduced, or demands will be placed
back on the federal government to make up the shortfall."
Congress may consider other Internet tax measures this year,
Repeal of the 3 percent telephone excise tax, initially created
to help finance the Spanish-American War and now seen by many as an
extra cost that can hinder Internet access.
Putting into law the Supreme Court decision, known as Quill,
that governs remote sales and sales taxes. This would effectively
maintain the tax status quo for e-commerce and catalog sales, and
it could be done temporarily in case state revenues do start to
Defining exactly what the Supreme Court meant by "nexus" in
that Quill case the requirement that a business have a physical
presence in a state before that state can collect its sales tax.
The Internet raises numerous questions about what that means, such
as how to treat a Web page, the location of a server or the
location of an Internet provider.
"You can't stuff the new economy into a set of rules that were
written for a smokestack economy," Wyden said.