CA Governor Passes 3-Year Ban on E-Taxes

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California Gov. Pete Wilson signed into law late last month a three-year ban on new taxes on Internet access and on purchases made online. At the same time, the California Legislature sent an anti-spam bill to Wilson that is likely to get his signature as well.

"It's only fitting that the state that showed America how to surf -- and surf the Internet -- should also lead the policy debate about how to keep the Internet a vibrant avenue for growth and opportunity," Wilson said while signing the Internet Tax Freedom Act into law at a ceremony at Cisco Systems in San Jose.

As governor of the state that is home to the Silicon Valley, Wilson has been a vocal opponent of regulations that might limit the Internet's growth. He was one of two governors in February who opposed the National Governors' Association's adoption of a proposal pressuring Congress to allow states to tax Internet and mail-order sales even where merchants have no physical presence. The other dissenter was Gov. James S. Gilmore III of Virginia.

The California Internet Tax Freedom Act goes into effect Jan. 1 and exempts Internet merchants from collecting sales taxes on goods sold in that state if they have no physical presence there.

"This is good news in that the largest state in the union is now officially on record [saying] that the presence of a server or other electronic device does not create nexus [presence in the state that would require sales tax collection]," said Mark Micali, vice president of government affairs at the Direct Marketing Association.

The DMA contends that if Internet merchants are required to collect sales taxes in states where they have no physical presence, it may set a precedent for lawmakers to begin forcing catalogers to collect sales taxes in states where they have no physical presence as well.

With Wilson's signing of the Internet Tax Freedom Act, California also may have given strength to those who are arguing for an Internet tax ban at the federal level, Micali said. There are a variety of bills working through Congress calling for anywhere from a two-year to a six-year moratorium. How they'll reconcile is anyone's guess. In June, the House passed H.R. 4105, which would impose a three-year moratorium on Internet access taxes. It also calls for a commission to explore interstate sales tax collection. In July, the Senate Finance Committee recommended a two-year ban. The Senate is expected to vote on its version of a moratorium this month, and then it will be up to the two houses to reconcile their bills.

Meanwhile, the California Legislature late last month sent an anti-spam bill to Wilson. California Assembly bill 1629, the Internet Consumer Protection Act, would restrict spam, or unsolicited commercial e-mail, unless there is a pre-existing relationship between the sender and the recipient.

The bill would allow Internet service providers who notify e-mailers of an anti-spam policy to collect civil damages from unsolicited bulk e-mailers equal to the amount of money lost because of the unsolicited e-mail up to $25,000, or $50 per message, whichever is greater.

Originally, the bill was crafted to allow consumers to collect civil damages from unsolicited bulk e-mailers.

"[However], Internet service providers have the wherewithal and the incentive to go after spammers so they were the logical choice," said John Cusey, a spokesman for Assemblyman Gary Miller (R-Diamond Bar), one of the bill's sponsors.

Wilson is expected to sign A.B. 1629 into law in the next few weeks, Cusey said.

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