Lawmakers not ready to consider Internet taxes

Associated Press

WASHINGTON — With a weekend deadline looming, the House voted Tuesday to extend a ban on Internet-only taxes by an additional two years, putting off the difficult issue of how state sales taxes should apply to electronic commerce.

The bill, which the House passed on a voice vote, would extend until Nov. 1, 2003, a moratorium preventing taxes on Internet access and multiple and discriminatory Internet taxes. That three-year moratorium, which does not address sales taxes, expires Sunday.

Rep. Christopher Cox, R-Calif., said if the temporary ban lapses "all hell may break loose" because some 7,500 taxing jurisdictions could be "lying in wait, ready to pounce" by imposing a wide range of new taxes on Internet access, service providers, even telephone service.

Sen. John McCain, senior Republican on the Senate Commerce Committee, said in a letter to Majority Leader Tom Daschle that the measure should be quickly dispatched to the White House. McCain, R-Ariz., said that would give states and business ample time to work out a simplified system to collect taxes that are already owed, but rarely collected, on remote sales via the Internet, catalogue and telephone.

"We need to keep things alive … so we have an opportunity to grapple with the tough issues," said Rep. Ernest Istook, R-Okla.

Under a Supreme Court decision, businesses cannot be forced to collect a state’s sales tax unless the business has a physical presence, or "nexus," in that state. The court also said Congress could authorize states to collect these taxes for other states, but lawmakers have never done so.

The Bush administration preferred a longer extension but will back the two-year measure.

"We won’t be able to address all of the sales tax and nexus issues," said Mark Weinberger, assistant Treasury secretary for tax policy. "We definitely need to extend the moratorium. We are supportive of a short-term extension."

Washington state, 44 others and the District of Columbia impose sales taxes. Governors and state legislators say without a change, the growth of Internet commerce could cause steep tax losses. A recent University of Tennessee study estimated the total could reach $440 billion over the next decade.

Traditional retailers have also been pushing for a new sales tax system, arguing it is unfair for them to have the burden of collecting them while their online competitors do not.

"We should not continue to stand by while remote sellers enjoy an advantage over traditional bricks-and-mortar sellers," said Rep. William Delahunt, D-Mass.