U.S. Senate debating Internet tax moratorium

TomF

This is probably something to be very worried about here in the land of taxes. The article appears in the New York Times newspaper which requires lots of hassle to register, so I'm posting the article here. Hope it isn't too long. The actual URL is
http://www.nytimes.com/2003/11/06/technology/06net.html?ex=1068699600&en=e7028f7ea10c60b5&ei=5062&partner=GOOGLE

November 6, 2003
Senate Debate Due on Hotly Contested Internet Tax Bill
By JOHN SCHWARTZ

long-delayed federal Internet tax bill that would turn a temporary moratorium on taxes on Internet access into a permanent ban is scheduled for debate today on the floor of the Senate.

The argument over the bill has been as heated as a chat-room brawl. Opponents contend that state coffers will be emptied as more areas of commerce - like telephone service - become Internet-based and fall within the ban. "Every time we, in our wisdom, tell a state or a city that it cannot use this tax, all we are doing is increasing the chance that Minnesota or Tennessee will increase some other tax, or fire some teachers or lay off some employees or close some parks," Senator Lamar Alexander, Republican of Tennessee, said Tuesday on the Senate floor.

Supporters argue that the states want to tax every e-mail message, even every electron. The bill, they say, will not have the dire effects that opponents predict. "You now have what amounts to a final assault on the bill," said Senator Ron Wyden, Democrat of Oregon, who is sponsoring the bill with George Allen, Republican of Virginia.

Senator Wyden said that his opponents had been predicting "the fall of Western civilization" since the first moratorium passed seven years ago. "Who do you want to believe, the people who were wrong over the last seven years, or the facts?" he asked in a telephone interview.

The only thing that both sides agree on, it seems, is that the bill has nothing to do with banning sales taxes on online purchases. The moratorium bans taxes on Internet access, including high-speed access through telephone digital subscriber lines; "discriminatory" taxes, which include taxes by multiple states on the sales of a single item; and taxes that would treat Internet purchases differently from sales at brick-and-mortar stores.

The moratorium, which was passed in 1998 and extended in 2001, expired on Nov. 1. The House has already passed a similar version of the bill. The new bill would take away the right to tax Internet access from a handful of states, including Texas and Wisconsin, which passed such taxes before 1998 and have been allowed to keep collecting those taxes under a grandfather clause. It would also cancel taxes on residential digital subscriber line access being levied by more than 15 states, causing the loss of as much as $80 million a year in total revenue to those states, the Congressional Budget Office said.

Bush administration officials weighed in yesterday, urging Congress to pass the bill. "Keeping the Internet free of multiple or discriminatory taxes will help create an environment for innovation and will help ensure that electronic commerce remains a vital, and growing, part of our economy," Treasury Secretary John W. Snow and Commerce Secretary Donald L. Evans said in a joint statement. "A permanent moratorium means a permanent victory for American consumers and businesses."

But state and local governments oppose the bill. David Quam, the director of state-federal relations for the National Governors Association, said that the "the debate is over whether you want to reach into state and local pockets in these difficult fiscal times, to unnecessarily expand the scope of the moratorium to existing state and local taxes." Mr. Quam said that despite assurances from Senator Wyden to the contrary, the bill would help companies evade billions of dollars in state and local taxes on telecommunications and other services. "Our position has always been, if you're going to pre-empt state and local law, then you need to do it precisely, so there are no unintended consequences of that action," he said.

Senator Alexander has called the bill an unfunded federal mandate because it restricts the ability of states to impose taxes. In his speech Tuesday, he said that he would raise a point of order that would require 51 senators to waive the ban on unfunded mandates and suggested that he might demand a companion law that would use federal money to repay the states for any lost revenue. "If we think it is so important, we should pay the bill," he said.

Senator Wyden said that the bill would not exempt telecommunications and other services from taxation, and that he had worked with Senator Alexander and the states to write language in the bill to resolve any ambiguity.

He acknowledged that state and local governments had "very significant financial needs," but said, "they don't come about because of Internet tax policy - they come about by misguided tax policies put in place by the executive branch and its supporters" and because of a "fumbling economy."

States have long wanted to be able to collect taxes from Internet merchants who sell within their borders, just as they have wanted to collect sales taxes on catalog and telephone sales. But under a 1992 Supreme Court decision in Quill Corp. v. North Dakota, merchants are only required to collect sales taxes in those states where they have a physical presence, or nexus.

"They can't overturn Quill, they can't overturn mail order, they can't overturn phone sales," Senator Wyden said. "They see this as the last cash cow they can possibly milk."

dahamsta

I'm not sure there's anything to /worry/ about. If the bill passes, most everything will stay the same as it has been for seven years. If it doesn't, Europe will be put on a more equal footing with the US on Internet sales.

(Europe should have set up a moratorium like this years ago to encourage takeup, commerce, etc. Instead they force themselves to come up with idiocy like the VAT solution. Duh duh duh.)

adam