House Committee approves a two-year extension of the Net Tax Moratorium. But the long-term future of Internet taxation is uncertain, and two years, as every member of the House knows, is a very short time for the Federal government.

by Patricia Fusco ISP-Planet Managing Editor [October 12, 2001]

The current ban expires in just eight days—on October 20. The Committee approved an amendment in the nature of a substitute offered by Rep. Spencer Bachus (R-AL). The legislation provides a two-year extension of the e-tax moratorium, rather than the five-year extension originally proposed when the bill was first introduced in June and as approved by the Subcommittee on Commercial and Administrative Law in August.

Slim margin
Bachus's amendment was affirmed by a 19 to 15 vote. An affirmative voice vote officially passes the bill to its next step toward becoming law.

But this variation of the Bachus amendment was affirmed only after a proposal that would have provided for a mere eight-month extension of the Internet tax moratorium was rejected by a vote of 12 to 19.

Given the amount of time it takes to successfully transform a bill into law in this country, an eight-month extension would have been a waste of lawmaker's time and taxpayer's money. Shucks, the ink wouldn't be dry on the first extension before Congress would have to begin debating the next.

But Bachus argued that a shorter extension of the Net Tax Moratorium was necessary to appease state and local authorities concerned about the sales tax collection issues.

For that, we much bestow upon Rep. Bachus the uncoveted "Doh!" award. Given the current state of the economy—let alone the e-economy portion—it's disconcerting to think that Bachus would even suggest a policy that would levy new Internet taxation schemes at this time. Fortunately, his arguments fell short on appeal.

And so Section 1101(a) of the Internet Tax Freedom Act originally enacted in late 1998 stands for another two years. In the meantime, no state or political subdivision thereof shall impose any of the following taxes:

1. Taxes on Internet access, unless such tax was generally imposed and actually enforced prior to October 1, 2003.
2. Multiple or discriminatory taxes on electronic commerce.

Claims, counterclaims
Rep. Bob Barr (R-GA) and Rep. Bob Goodlatte (R-VA), among other proponents of the five-year extension, argued that Internet sales account for less than one percent of retail sales. They also argued that passage of a five-year extension of e-taxes and a permanent ban on Internet access levies would assist the development of the Internet and would help return the us to the robust economy that once was.

Rep. Bachus and Rep. William Delahunt (D-MA) countered that the Internet tax moratorium is harming the ability of state and local taxing authorities to finance schools, police, and fire protection. They also argued that any legislation should first extend the current moratorium and second address state collection of sales and use taxes, which is not affected by the moratorium.

Congress has passed no legislation pertaining to sales and use taxes. However, there are several bills pending in both legislative houses that would provide this authority. For example, the Internet Tax Moratorium and Equity Act (HR 1410) sponsored by Rep. Ernest Istook (R-OK) proposed to streamline the sales and use tax system by the following in the context of Internet sales:

• A centralized, one-stop, multi-state registration system for sellers.
• Uniform definitions for goods or services, the sale of which may, by State action, be included in the tax base.
• Uniform rules for attributing transactions to particular taxing jurisdictions.
• Uniform procedures for the treatment of purchasers exempt from sales and use taxes; and
• Relief from liability for sellers that rely on such State procedures.

Additional bill markup language included provisions that would have certified which software dot-com companies could rely on to determine sales and use tax rates and taxability, standardized tax returns and remittance forms, allowed for consistent electronic filing and remittance methods, and assured states agencies that they were warranted to determine all of these processes.

Relevence
Since bills like HR 1410 (and its kin in the Senate, S 512) will not be discussed anytime soon, Rep. Bachus also offered an amendment that would have addressed sales and use taxes. Fortunately, the revised markup language was ruled non germane—end of discussion.

While it's great news that the House took action on extending the current Internet tax moratorium, it's unfortunate that the permanent ban of taxes on Internet access was left by the wayside.

Will ISPs be better suited to potentially implement diverse state and local tax accounting systems across two years from now?

Maybe.

But the very idea of it still sticks in the craw of most independent ISP operators.

— End