Computer users could surf without fear of
taxes that single out the Internet for five more years under
legislation passed by the House, part of a broader Republican
agenda aimed at appealing to the high-tech industry.
The House voted 352-75 Wednesday for the bill, part of a
Republican "E-Contract 2000'' agenda intended to underscore their
support for the high-tech sector, a prime campaign contribution
battleground for both parties this election year. Other priority
issues include repealing the 102-year-old 3 percent telephone
excise tax, increasing visas for highly skilled foreign workers and
granting digital signatures the force of law.
"The high-tech industry is the future,'' said House Speaker
Dennis Hastert, R-Ill. "The last thing we want to do is impede our
future with high taxes and excessive government regulation.''
The moratorium bill, sent to the House floor without a single
hearing, would extend for five years a current ban on
Internet-specific taxes that expires in October 2001. The bill is
designed to prevent states from taxing access to the Internet, such
as requiring computer users to pay taxes on their America Online
accounts. It also would bar new taxes aimed specifically at online
activity, such as the amount of time a user spends on the Internet
or how much material a user downloads.
Additionally, the bill would repeal a grandfather clause enacted
in 1998 that allowed the states of Connecticut, Montana, New
Mexico, North Dakota, Ohio, South Dakota, Tennessee, Texas,
Washington and Wisconsin and 16 cities to keep taxes they had in
place at the time.
Without the moratorium extension and repeal of the grandfather
clause, thousands of state, county and local taxing bureaucrats
could slow down Internet growth and "drown the whole thing in a
sea of red tape,'' said Rep. Christopher Cox, R-Calif.
"Don't pile new taxes on the Internet,'' he said.
Industry groups applauded the vote.
"E-commerce is barely in its infancy and a rush to impose
government levies could stifle its growth and development,'' said
Dorothy Coleman, tax policy vice president at the National
Association of Manufacturers.
Opposing the five-year extension are state and local government
officials, including 39 governors worried about future revenue
losses for services ranging from roads to schools. Also against the
bill are many traditional retailers, including big chains like
Wal-Mart and Sears, that fear Internet competitors will gain an
unfair advantage due solely to tax laws.
The moratorium doesn't directly address sales taxes. However,
under a Supreme Court ruling, states can't collect them from remote
sellers -- such as an Internet or catalog business -- unless the
company has a physical presence such as a warehouse or store in
that state. The moratorium extension, opponents say, would
effectively put those central issues on the back burner for far too
Rep. William Delahunt, D-Mass., pointed to a recent University
of Tennessee study estimating states could lose $20 billion in
sales tax revenue by 2003 if things remain as they are.
"These issues will not go away,'' said Rep. Jerrold Nadler,
D-N.Y. "State and local governments will need clear rules on what
they can and cannot tax.''
The White House issued a statement opposing the five-year
extension, saying it would "in effect enact a hold on any further
consideration of Internet tax issues, creating uncertainty in a
vital and rapidly growing industry.''
But Rep. Robert Goodlatte, R-Va., said the moratorium "has
absolutely nothing to do with the sales tax. We will have the
opportunity to have that debate.''
The House voted 219-208 to defeat an amendment supported by the
White House that would have extended the tax moratorium for only
two years and kept the grandfather clause for some state and local
taxes. Another amendment that would have made the tax moratorium a
permanent ban also was defeated by a 336-90 vote.
The five-year tax moratorium measure now heads to the Senate,
where it faces an uncertain future. Senate Commerce Committee
Chairman John McCain, R-Ariz., put off consideration of his
permanent Internet tax ban bill after it encountered stiff
opposition last month.
"We've been looking at a three-year extension,'' said Senate
Majority Leader Trent Lott, R-Miss. "But it's not scheduled right
The tax moratorium extension bill is H.R. 3709.
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